<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------
FORM 8-K/A
CURRENT REPORT
-----------------
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: August 31, 1998
------------------
(DATE OF EARLIEST EVENT REPORTED)
STERILE RECOVERIES, INC.
(Exact name of Registrant as specified in its Charter)
FLORIDA 000-20997 59-3252632
(State or other juris- (Commission File (I. R. S. Employer
diction of incorporation) Number) Identification No.)
28100 U.S. HIGHWAY 19 NORTH, SUITE 201
CLEARWATER, FLORIDA 33761
(Address of Principal Executive Offices)
(727) 726-4421
(Registrant's Telephone Number, including area code)
<PAGE> 2
The undersigned Registrant amends Item 7 of its Current Report on Form 8-K
dated August 31, 1998, filed with the Securities and Exchange Commission on
September 8, 1998, to read in its entirety as follows:
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired: Repak
Surgical Enterprises, Inc.
Report of Independent Public Accountants
Repak Surgical Enterprises, Inc. Financial
Statements for the years ended December 31, 1997
and 1996, and the six months ended June 30, 1998
and 1997 (unaudited)
Repak Surgical Enterprises, Inc. Notes to
Financial Statements for the years ended December
31, 1997 and 1996, and the six months ended June
30, 1998 and 1997 (unaudited)
(b) Pro Forma Combined Financial Information
Sterile Recoveries, Inc. Pro Forma Condensed
Combined Balance Sheet at June 30, 1998
(unaudited)
Sterile Recoveries, Inc. Notes to Pro Forma
Condensed Combined Balance Sheet (unaudited)
Sterile Recoveries, Inc. Pro Forma Combined
Statement of Earnings for the six months ended
June 30, 1998 (unaudited)
Sterile Recoveries, Inc. Pro Forma Combined
Statement of Earnings for the year ended December
31, 1997 (unaudited)
Sterile Recoveries, Inc. Notes to Pro Forma
Combined Statements of Earnings (unaudited)
(c) Exhibits
*2.4 Acquisition Agreement dated as of August 31,
1998, among Sterile Recoveries, Inc., Standard
Textile Co, Inc. and Repak Surgical Enterprises,
Inc.
*4.4 First Amendment to Restated Articles of
Incorporation dated as of August 31, 1998 of
Sterile Recoveries, Inc. (designating the rights,
preferences, and limitations of the Series A
Preferred Stock)
*10.29 Registration Rights Agreement dated as of
August 31, 1998, between Sterile Recoveries, Inc.
and Standard Textile Co., Inc.
23.1 Consent of Arthur Andersen, LLP
- ---------------
* Incorporated by reference from the Registrant's Current
Report on Form 8-K dated August 31, 1998, filed with the
Securities and Exchange Commission on September 8, 1998.
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Repak Surgical Enterprises, Inc.
We have audited the accompanying balance sheets of Repak Surgical Enterprises,
Inc. (formerly the Mason facility of the Repak Surgical Division of Standard
Textile Co., Inc., Note 1) as of December 31, 1997 and 1996, and the related
statements of operations and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Repak Surgical Enterprises,
Inc. (formerly the Mason facility of the Repak Surgical Division of Standard
Textile Co., Inc.) as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Arthur Anderson LLP
Cincinnati, Ohio
September 18, 1998
<PAGE> 4
REPAK SURGICAL ENTERPRISES, INC.
(Formerly the Mason facility of the Repak Surgical
Division of Standard Textile Co., Inc., Note 1)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1997 1996 1998
----------- ----------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 300 $ 492 $ 300
Accounts receivable, less allowance for
doubtful accounts of $31,230, $31,230
and $26,040, respectively 937,069 990,456 981,762
Prepaid expenses 5,899 48,531 11,417
Reusable surgical linens and related
items, net (Note 2) 2,099,657 2,239,888 2,001,293
---------- ---------- ----------
Total current assets 3,042,925 3,279,367 2,994,772
PROPERTY, PLANT & EQUIPMENT, net
(Note 2) 2,292,604 2,552,774 2,040,822
---------- ---------- ----------
$5,335,529 $5,832,141 $5,035,594
========== ========== ==========
LIABILITIES AND PARENT'S EQUITY IN
DIVISION
CURRENT LIABILITIES:
Current portion of capital lease
obligation (Note 5) $ 108,019 $ 91,431 $ 112,617
Accounts payable 73,742 93,878 39,436
Accrued payroll and related expenses 403,150 382,712 264,589
Other accrued expenses 121,216 181,255 181,069
---------- ---------- ----------
Total current liabilities 706,127 749,276 597,711
CAPITAL LEASE OBLIGATION (Note 5) 614,739 730,708 557,257
COMMITMENTS AND CONTINGENCIES (Note 5)
PARENT'S EQUITY IN DIVISION (Notes 3 & 6) 4,014,663 4,352,157 3,880,626
---------- ---------- ----------
$5,335,529 $5,832,141 $5,035,594
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 5
REPAK SURGICAL ENTERPRISES, INC.
(Formerly the Mason facility of the Repak Surgical
Division of Standard Textile Co., Inc., Note 1)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------- ----------------------------
1997 1996 1998 1997
---------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues (Note 2) $8,291,059 $8,328,410 $4,384,349 $4,222,702
Cost of revenues 5,635,085 5,795,526 2,918,915 2,955,523
---------- ---------- ---------- ----------
Gross profit 2,655,974 2,532,884 1,465,434 1,267,179
Distribution expense 785,262 879,833 402,525 413,807
Selling, general & administrative
expenses (Note 6) 1,038,347 1,168,097 428,072 534,054
---------- ---------- ---------- ----------
Income from
continuing operations 832,365 484,954 634,837 319,318
Interest expense 65,020 72,969 29,316 33,546
Other (income) expense 14,492 (4,964) 25,744 9,506
---------- ---------- ---------- ----------
Net income $ 752,853 $ 416,949 $ 579,777 $ 276,266
========== ========== ========== ==========
UNAUDITED PRO FORMA
INFORMATION (Note 3):
Income before income taxes $ 752,853 $ 416,949 $ 579,777 $ 276,266
Provision for income taxes 301,000 167,000 232,000 110,000
---------- ---------- ---------- ----------
Net income $ 451,853 $ 249,949 $ 347,777 $ 166,266
========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 6
REPAK SURGICAL ENTERPRISES, INC.
(Formerly the Mason facility of the Repak Surgical
Division of Standard Textile Co., Inc., Note 1)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------- ---------------------------
1997 1996 1998 1997
----------- --------- --------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 752,853 $ 416,949 $ 579,777 $ 276,266
Adjustments to reconcile net
income to net cash
provided by operating
activities -
Depreciation & amortization 539,667 508,696 274,635 263,665
Amortization of reusable surgical
linens 693,374 672,803 371,509 364,173
Change in current assets and
liabilities -
Accounts receivable 53,387 120,669 (44,693) 191,458
Prepaid expenses 42,632 (24,365) (5,518) 25,890
Reusable surgical linens and
related items (553,143) (879,673) (273,145) (191,289)
Accounts payable (20,136) (39,217) (34,306) 66,189
Accrued expenses (39,601) (203,566) (78,708) 54,746
----------- --------- --------- -----------
Net cash provided by
operating activities 1,469,033 572,296 789,551 1,051,098
----------- --------- --------- -----------
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (279,497) (134,467) (22,853) (151,016)
----------- --------- --------- -----------
Net cash used in investing
activities (279,497) (134,467) (22,853) (151,016)
----------- --------- --------- -----------
Cash flows from financing activities:
Borrowings (payments) to parent (1,090,347) (346,506) (713,814) (851,608)
Payments on capital lease obligation (99,381) (91,431) (52,884) (48,655)
----------- --------- --------- -----------
Net cash used in financing
activities (1,189,728) (437,937) (766,698) (900,263)
----------- --------- --------- -----------
Decrease in cash (192) (108) - (181)
Cash, beginning of period 492 600 300 492
----------- --------- --------- -----------
Cash, end of period $ 300 $ 492 $ 300 $ 311
=========== ========= ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 65,020 $ 72,969 $ 29,316 $ 33,546
=========== ========= ========= ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE> 7
REPAK SURGICAL ENTERPRISES, INC.
(Formerly the Mason facility of the Repak Surgical
Division of Standard Textile Co., Inc.)
NOTES TO FINANCIAL STATEMENTS
(Information as of and for the period ended
June 30, 1998 and 1997 is unaudited)
(1) The Company Formation and Sale-
Repak Surgical Enterprises, Inc. (the Company), formerly the Mason
facility of the Repak Surgical Division of Standard Textile Co., Inc.
(the Parent), provides a service to deliver, pickup, launder, sterilize
and repackage reusable surgical linens primarily to hospitals in Ohio,
Michigan and West Virginia.
The Company was incorporated in Ohio on July 15, 1998 under the name
Repak Surgical Enterprises, Inc. On August 31, 1998, all outstanding
common stock of the Company was acquired by Sterile Recoveries, Inc.
(SRI) for 566,667 shares of SRI Series A Preferred Stock which has a
liquidation value of $18 per share, is convertible into common stock
of SRI, and accrues dividends at 2% through the earlier of September
1, 2004 or conversion into common stock. For approximately $1.5
million, SRI contracted to purchase the real estate which had been
leased by the Company under a capital lease and the Company contracted
to supply certain goods to SRI for the three-year period subsequent to
the acquisition.
(2) Summary of Significant Accounting Policies-
(a) Reusable Surgical Linens and Related Items- Reusable surgical
linens are stated at cost and amortized over their estimated
useful lives based on the number of available uses for each
product type (approximates 10-36 months).
Reusable surgical linens and related items consist of the
following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Reusable surgical linens $3,295,252 $3,943,971 $3,055,188
Repackaging supplies 126,612 182,068 125,957
---------- ---------- ----------
3,421,864 4,126,039 3,181,145
Less accumulated
amortization (1,322,207) (1,886,151) (1,179,852)
---------- ---------- ----------
$2,099,657 $2,239,888 $2,001,293
========== ========== ==========
</TABLE>
<PAGE> 8
(b) Property, Plant and Equipment- Property, plant and equipment
are carried at cost. Depreciation is provided over the lease
term for assets under capital lease and over the estimated
useful lives for other assets using the straight-line method.
The estimated useful lives of the various classes of assets
are as follows:
Facility under capital lease 15 years
Machinery and equipment 10 years
Leasehold improvements and furniture and fixtures 5-10 years
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1996 1998
---------- ---------- ----------
<S> <C> <C> <C>
Facility under capital
lease $1,397,198 $1,397,198 $1,397,198
Machinery and equipment 2,959,884 2,735,414 2,928,193
Leasehold improvements 951,753 933,265 956,263
Furniture and fixtures 346,017 337,244 314,843
---------- ---------- ----------
5,654,852 5,403,121 5,596,497
---------- ---------- ----------
Less accumulated
depreciation (3,362,248) (2,850,347) (3,555,675)
---------- ---------- ----------
$2,292,604 $2,552,774 $2,040,822
========== ========== ==========
</TABLE>
(c) Revenue Recognition- Revenue is recorded at the time the
linen is delivered to the customer.
(d) Management Allocations- The Parent has allocated certain
common expenses to the Company using a proportional cost
allocation method (Note 6). Management believes this method
provides a reasonable estimation of common expenses related
to the Company and that costs allocated to the Company
approximate costs that would have been incurred by the
Company on a stand alone basis.
(e) Use of Estimates- 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
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(f) Unaudited Financial Statements- In the opinion of management,
the unaudited financial statements as of June 30, 1998, and
for the six months ended June 30, 1998 and 1997 reflect all
adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the results
for the periods reported, but operating results for the six
months ended June 30, 1998 are not necessarily indicative of
the results for the entire year. Such financial information
is subject to yearend adjustments and annual audit.
<PAGE> 9
(3) Income Taxes-
For federal and state income tax purposes, the Parent has elected to
include its taxable income with that of its shareholders (an S
Corporation election). Accordingly, no provision for income taxes or
related tax liability is recorded.
As discussed in Note 1, as of July 15, 1998, the Company incorporated
and became subject to federal and state taxes on its taxable income.
The Company will recognize a deferred tax benefit for cumulative
temporary differences between financial and tax reporting as of July
15, 1998, the date of incorporation. If the incorporation had occurred
at December 31, 1997, the deferred tax benefit would have been
approximately $18,000.
The following summarizes the estimated unaudited pro forma provision
for income taxes that would have been reported had the Company filed
federal and state income tax returns as a C Corporation under the
liability method of accounting, in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
--------------------- --------------------
1997 1996 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Currently payable:
Federal $265,000 $244,000 $177,000 $128,000
State & local 76,000 70,000 51,000 36,000
Deferred:
Federal (32,000) (115,000) 3,000 (42,000)
State & local (8,000) (32,000) 1,000 (12,000)
-------- -------- -------- --------
Unaudited pro forma
provision for income
taxes $301,000 $167,000 $232,000 $110,000
======== ======== ======== ========
</TABLE>
The following is a reconciliation between the statutory federal income
tax rate and the unaudited pro forma provision for income taxes.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
------------------ ----------------
Amount % Amount %
-------- --- -------- ---
<S> <C> <C> <C> <C>
Computed provision for
income taxes at
statutory
federal rate $256,000 34% $142,000 34%
State and local income
taxes, net of federal
income tax effect 45,000 6 25,000 6
-------- --- -------- ---
Unaudited pro forma
provision for income
taxes $301,000 40% $167,000 40%
======== === ======== ===
</TABLE>
<PAGE> 10
Deferred income taxes are the result of provisions of the tax laws
that either require or permit certain items of income or expense to be
reported for tax purposes in different periods than they are reported
for financial reporting. The components of the Company's pro forma net
deferred tax benefit as of December 31, 1997, is as follows:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Property, plant and equipment $ (198,518)
Reusable surgical linens (33,106)
Currently non-deductible expenses 74,619
Capital lease 174,694
----------
$ 17,689
==========
</TABLE>
(4) Employee Benefits-
Eligible Company employees participate in a 401(k) profit sharing plan
established by the Parent. The plan provides for voluntary
contributions by Company employees up to a specified maximum
percentage of gross pay. Company contributions are discretionary and
approximated $66,000 for the years ended December 31, 1997 and 1996,
and $41,000 and $33,000 for the six months ended June 30, 1998 and
1997, respectively.
(5) Commitments and Contingencies-
(a) Capital Lease- The Company leases its main facility from a
partnership primarily owned by the Parent's shareholders
under a lease which expires in 2003. This lease was
terminated in conjunction with the acquisition of the Company
by SRI (Note 1). Amortization of the capitalized amount is
included in depreciation expense.
Future payments under the lease (exclusive of CPI) as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $164,400
1999 164,400
2000 164,400
2001 164,400
2002 164,400
Thereafter 82,200
--------
904,200
Less portion of the payments representing
interest (181,442)
--------
Present value of lease payments $722,758
========
</TABLE>
(b) Operating Leases- The Company leases two distribution centers
and certain vehicles and equipment under operating leases.
Future minimum lease payments under these leases are as
follows:
<TABLE>
<S> <C>
1998 $205,000
1999 238,000
2000 239,000
2001 111,000
--------
$793,000
========
</TABLE>
<PAGE> 11
Rental expense approximated $234,000 and $213,000 for the
years ended December 31, 1997 and 1996, and $131,000 and
$116,000 for the six months ended June 30, 1998 and 1997,
respectively.
(c) Litigation- The Company is subject to various claims,
lawsuits and administrative proceedings arising in the
ordinary course of business. Management believes that any
liability that may finally be determined will not have a
material impact on the financial position or results of
operations.
(6) Related Party Transactions-
(a) The majority of the Company's reusable surgical linens are
manufactured by a division of the Parent and transferred at
cost to the Company as needed.
(b) The Parent transfers assets and reusable surgical linens,
allocates certain administrative costs to the Company,
applies cash receipts/ disbursements related to Company
receivables/payables, and records profits reported by the
division through an intercompany account which corresponds to
the activities accumulated in the Parent's equity in division
included in the accompanying balance sheets. The Parent does
not charge the Company interest on its net equity in the
division. Activity related to this account for the years
ended December 31, 1997 and 1996, and the six month period
ended June 30, 1998 is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996 June 30, 1998
----------- ------------ -------------
<S> <C> <C> <C>
Transfers of reusable
surgical linens,
at cost $ 834,627 $ 573,902 $ 607,227
========== ========== ==========
Asset transfers $ - $ - $ -
========== ========== ==========
Allocation of
administrative costs $ 540,415 $ 790,415 $ 161,078
========== ========== ==========
Cash receipts, net $2,465,389 $1,710,553 $1,465,747
========== ========== ==========
Average Parent's
equity in the
division $4,183,410 $4,316,936 $3,947,645
========== ========== ==========
</TABLE>
<PAGE> 12
STERILE RECOVERIES, INC.
PRO FORMA FINANCIAL STATEMENTS
The accompanying Pro Forma Combined Balance Sheet and Statements of Earnings
have been derived from the historical financial statements of Sterile
Recoveries, Inc. (the "Company") and Repak Surgical Enterprises, Inc.
("Repak"), and adjusts such information to give effect to the Company's
acquisition of Repak, which was completed on August 31, 1998 using the purchase
method of accounting.
The Pro Forma Combined Balance Sheet as of June 30, 1998 assumes that the
acquisition of Repak occurred on June 30, 1998. The Pro Forma Combined
Statements of Earnings for the year ended December 31, 1997 and the six months
ended June 30, 1998 assume that the acquisition of Repak occurred on January 1,
1997 and 1998, respectively, and include the actual results of operations of
the Company and Repak for the year ended December 31, 1997 and the six months
ended June 30, 1998.
The pro forma financial information is not necessarily indicative of the
results that would actually have occurred had the transactions been in effect
on the dates and for the period indicated or which may result in the future. In
the opinion of management, all adjustments have been made to fairly present the
pro forma information. This pro forma information should be read in conjunction
with the notes thereto and the historical financial information.
<PAGE> 13
STERILE RECOVERIES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------- -----------------------
Combined
SRI Repak Adjust- SRI/
ments Repak
-------- -------- -------- --------
ASSETS
<S> <C> <C> <C> <C>
Cash $ 60 $ - $ - $ 60
Accounts receivable, net 6,286 982 (232)(c) 7,036
Inventories 1,954 - - 1,954
Prepaid expenses and other assets 552 12 - 564
Reusable surgical products, net 11,888 2,001 (625)(d) 13,264
Property, Plant and equipment, net 8,077 2,041 420 (e) 10,538
Goodwill, net 507 - 4,626 (b) 5,133
Deferred income taxes 160 - - 160
-------- -------- ------- -------
Total assets $ 29,484 $ 5,036 $ 4,189 $38,709
======== ======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable $ 1,775 $ 39 $ - $ 1,814
Employee related accrued expenses 802 265 - 1,067
Other accrued expenses 752 181 - 933
Capital lease obligation - 670 (670)(f) -
Notes payable - working capital loan - - 100 (a) 1,600
1,500 (a)
-------- -------- ------- -------
Total liabilities 3,329 1,155 930 5,414
-------- -------- -------- ------
Commitments and contingencies - - - -
Shareholders' equity
Preferred stock - - 1 (a) 1
Common stock 6 - - 6
Additional paid-in capital 20,176 7,139 (a) 27,315
Retained earnings 5,973 3,881 (3,881) 5,973
-------- -------- ------- -------
Total shareholders' equity 26,155 3,881 3,259 33,295
-------- -------- -------- ------
Total liabilities and shareholders'
equity $ 29,484 $ 5,036 $ 4,189 $38,709
======== ======== ======== =======
</TABLE>
<PAGE> 14
STERILE RECOVERIES, INC.
PRO FORMA COMBINED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------- --------------------
Combined
SRI Repak Adjust- SRI/
ments Repak
--------- --------- ------ ---------
<S> <C> <C> <C> <C>
Revenues $ 24,015 $ 4,384 $ - $28,399
Cost of revenues 15,868 2,919 (34)(c) 18,753
---------- --------- ------ -------
Gross profit 8,147 1,465 34 9,646
Distribution expenses 1,746 402 - 2,148
Selling and administrative expenses 3,465 428 78 (a) 4,027
---------- --------- ------ -------
56 (b)
Income from operations 2,936 635 (100) 3,471
Interest expense (income), net (12) 55 (34)(d) 9
---------- --------- ------ -------
Income before income taxes 2,948 580 (66) 3,462
Income tax expense 1,150 232(g) 3 (e) 1,385
--------- --------- ------ -------
Net income $ 1,798 $ 348 $ (69) $ 2,077
========= ========= ====== =======
Dividends on preferred stock - - 101 (f) 101
--------- --------- ------ -------
Net income available for common
shareholders $ 1,798 $ 348 $ (170) $ 1,976
========= ========= ====== =======
Net income per common share - basic $ .32 $ .35
========= =======
Net income per common share - diluted $ .31 $ .32
========= =======
Weighted average common shares
outstanding - basic 5,660 5,660
========= =======
Weighted average common shares
outstanding - diluted 5,879 6,446
========= =======
</TABLE>
<PAGE> 15
STERILE RECOVERIES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------- ----------------------
SRI Repak Combined
Adjust- SRI/
ments Repak
(unaudited) (unaudited)
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 39,854 $ 8,291 $ - $48,145
Cost of revenues 26,286 5,635 (68)(c) 31,853
--------- --------- ------- -------
Gross profit 13,568 2,656 68 16,292
Distribution expenses 3,150 785 - 3,935
Selling and administrative expenses 5,924 1,039 157 (a) 7,233
--------- --------- ------- -------
113 (b)
Income from operations 4,494 832 (202) 5,124
Interest expense (income), net (142) 79 (65)(d) (128)
--------- --------- ------- -------
Income before income taxes 4,636 753 (137) 5,252
Income tax expense 1,835 301(g) (35)(e) 2,101
--------- --------- ------- -------
Net income $ 2,801 $ 452 $ (102) $ 3,151
========= ========= ======= =======
Dividends on preferred stock - - 204 (f) 204
--------- --------- ------- -------
Net income available to common
shareholders $ 2,801 $ 452 $ (306) $ 2,947
========= ========= ======== =======
Net income per common share - basic $ .50 $ .52
========= =======
Net income per common share - diluted $ .48 $ .49
========= =======
Weighted average common shares
outstanding - basic 5,637 5,637
========= =======
Weighted average common shares
outstanding - diluted 5,862 6,429
========= =======
</TABLE>
<PAGE> 16
Notes to Pro Forma Condensed Combined Balance Sheet:
<TABLE>
<CAPTION>
(a) A summary of the purchase price for the Acquisition:
<S> <C>
Fair Market Value of Preferred Stock $7,140
Cash payments from Line of Credit 1,500
Direct Acquisition Costs 100
------
$8,740
======
</TABLE>
The fair market value of preferred stock is based upon various factors
including an independent third party firm's valuation.
<TABLE>
<CAPTION>
(b) Net tangible assets acquired at fair value consist of:
<S> <C>
Accounts Receivable $ 750
Prepaid Expenses and Other 12
Reusable Surgical Products 1,376
Property, Plant and Equipment 2,461
Accounts Payable (39)
Other Accrued Expenses (446)
------
4,114
</TABLE>
Intangible assets acquired at fair value consist of:
<TABLE>
<S> <C>
Goodwill 4,626
------
$8,740
======
</TABLE>
(c) To adjust for certain accounts receivable not acquired by the Company.
The Company acquired only those receivables incurred after July 31,
1998.
(d) To adjust reusable surgical products to reflect the Company's policy
of expensing towels when placed in service ($100,000), and to reflect
the Company's intention to sell or dispose of products at fair value
which the Company does not consider marketable under its strategic
plan ($525,000).
(e) To adjust to fair market value property, plant and equipment, which
includes equipment to be paid for by the seller.
(f) Capital lease obligation not assumed because the Company purchased the
leased land and building.
(g) The Company has not presented deferred taxes because the deferred tax
assets and liabilities net to an immaterial amount.
(h) The Company assumed only those liabilities incurred after July 31,
1998.
<PAGE> 17
Notes to Pro Forma Combined Statement of Earnings:
(a) To reflect the amortization of the goodwill using a thirty-year
amortization period based on various factors including historical and
projected operating results.
(b) To reflect interest expense incurred for the portion of the line of
credit used in the acquisition.
(c) To reflect the adjustment to depreciation expense for the difference
in the depreciable life of the building from the remaining life of the
capital lease to that assigned by the Company.
(d) To eliminate the interest expense for the capital lease not assumed.
(e) To reflect income taxes on the net effect of the pro forma adjustments
set forth above, at the statutory income tax rate of approximately
40.0%.
(f) To reflect the 2% dividends payable on the Series A Preferred Stock
issued in the acquisition.
(g) To reflect the pro forma income tax expense as presented in the
accompanying financial statements.
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
*2.4 Acquisition Agreement dated as of August
31, 1998, among Sterile Recoveries, Inc.,
Standard Textile Co, Inc. and Repak
Surgical Enterprises, Inc.
*4.4 First Amendment to Restated Articles of
Incorporation dated as of August 31, 1998
of Sterile Recoveries, Inc. (designating
the rights, preferences, and limitations of
the Series A Preferred Stock)
*10.29 Registration Rights Agreement dated as of
August 31, 1998, between Sterile
Recoveries, Inc. and Standard Textile Co.,
Inc.
23.1 Consent of Arthur Andersen, LLP
</TABLE>
- ---------------
* Incorporated by reference from the Registrant's Current Report on Form 8-K
dated August 31, 1998 and filed with the Securities and Exchange Commission
on September 8, 1998.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by its
undersigned officer.
STERILE RECOVERIES, INC.
By: /s/ James T. Boosales
---------------------------
James T. Boosales
Executive Vice President and
Chief Financial Officer
Date: November 6, 1998
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 8-K/A, into Sterile Recoveries, Inc.'s
previously filed Registration Statement No. 333-31911 on Form S-8.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 9, 1998
