<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-12488
Isomedix Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-1986189
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
11 Apollo Drive, Whippany, New Jersey 07981
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(Address of principal executive offices) (Zip Code)
(201) 887-4700
(Registrant's telephone number, including area code)
NOT APPLICABLE
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 31, 1996: 6,996,176 shares of common stock,
$.01 par value.
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ISOMEDIX INC. AND SUBSIDIARIES
TABLE OF CONTENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS 3-4
March 31, 1996 and
December 31, 1995
CONSOLIDATED STATEMENTS OF INCOME 5
For the Three Months Ended
March 31, 1996 and 1995
CONSOLIDATED STATEMENT OF CHANGES 6-7
IN STOCKHOLDERS' EQUITY
For the Three Months Ended
March 31, 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS 8
For the Three Months Ended
March 31, 1996 and 1995
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9-11
Item 2. Management's Discussion and Analysis of 12-15
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 16-18
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 5,940,060 $ 4,860,088
Held-to-Maturity Securities 17,129,444 17,003,329
Accounts Receivable, Less
Allowance for Doubtful Accounts
of $400,000 at March 31, 1996
and $350,000 at December 31, 1995 8,468,112 8,048,560
Prepaid Expenses and Other Current Assets 1,349,855 830,629
------------ ------------
Total Current Assets 32,887,471 30,742,606
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
At Cost 67,298,689 66,751,900
Less, Accumulated Depreciation 18,527,141 17,855,870
------------ ------------
48,771,548 48,896,030
------------ ------------
RADIOISOTOPE
At Cost 66,873,153 66,096,338
Less, Accumulated Depreciation 37,683,113 36,624,237
------------ ------------
29,190,040 29,472,101
------------ ------------
EXCESS OF COSTS OVER NET ASSETS ACQUIRED 719,006 725,906
OTHER ASSETS 3,012,533 2,186,868
------------ ------------
Total Assets $114,580,598 $112,023,511
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 4
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- -----------
LIABILITIES (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 500,000 $ 500,000
Accounts Payable 872,466 766,914
Accrued Expenses 824,163 864,539
Contract Deposits 194,083 119,781
Income Taxes Payable 1,341,270 545,888
------------- -------------
Total Current Liabilities 3,731,982 2,797,122
LONG-TERM DEBT 8,500,000 8,600,000
DEFERRED INCOME TAXES 8,548,105 8,453,497
------------- -------------
Total Liabilities 20,780,087 19,850,619
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STOCKHOLDERS' EQUITY
PREFERRED STOCK
$1.00 par value
Authorized - 1,000,000 shares
Issued and Outstanding - none
COMMON STOCK
$.01 par value
Authorized - 15,000,000 shares Issued:
March 31, 1996 - 7,169,868 shares
December 31, 1995 - 7,169,868 shares
Outstanding:
March 31, 1996 - 6,996,176 shares
December 31, 1995 - 6,984,528 shares 71,699 71,699
ADDITIONAL PAID-IN CAPITAL 37,705,994 37,719,155
RETAINED EARNINGS 58,652,150 57,167,649
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96,429,843 94,958,503
LESS, COMMON STOCK HELD IN THE TREASURY,
AT COST
March 31, 1996 - 173,692 shares
December 31, 1995 - 185,340 shares (2,629,332) (2,785,611)
------------- -------------
Total Stockholders' Equity 93,800,511 92,172,892
------------- -------------
Total Liabilities and
Stockholders' Equity $ 114,580,598 $ 112,023,511
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 5
ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1996 % 1995 %
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
SALES $ 11,569,535 100.0 $ 11,455,026 100.0
COST OF SALES 6,095,810 52.7 5,535,678 48.3
------------ ----- ------------ -----
GROSS PROFIT 5,473,725 47.3 5,919,348 51.7
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 3,072,321 26.6 2,844,968 24.8
------------ ----- ------------ -----
OPERATING INCOME 2,401,404 20.7 3,074,380 26.9
OTHER INCOME (EXPENSE)
Investment Income 191,910 1.7 167,876 1.5
Interest Expense (119,146) (1.0) (135,252) (1.2)
------------ ----- ------------ -----
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,474,168 21.4 3,107,004 27.2
PROVISION FOR INCOME
TAXES 989,667 8.6 1,242,802 10.8
------------ ----- ------------ -----
NET INCOME $ 1,484,501 12.8 $ 1,864,202 16.4
============ ===== ============ =====
EARNINGS PER SHARE $ .21 $ .26
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 6
ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
BALANCE - December 31, 1995 $92,172,892
Exercise of Stock Options 80,023
Sales of Common Stock Under Employee
Stock Purchase Plan 63,095
Net Income 1,484,501
-----------
BALANCE - March 31, 1996 $93,800,511
===========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 7
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------------- -------------------------
NUMBER PAID-IN RETAINED NUMBER
OF SHARES AMOUNT CAPITAL EARNINGS OF SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1995 7,169,868 $71,699 $ 37,719,155 $57,167,649 (185,340) ($2,785,611)
Exercise of Stock Options -- -- (13,161) -- 6,200 93,184
Sales of Common Stock Under Employee
Stock Purchase Plan -- -- -- -- 5,448 63,095
Net Income -- -- -- 1,484,501 -- --
--------- ------- ------------ ----------- -------- -----------
BALANCE - March 31, 1996 7,169,868 $71,699 $ 37,705,994 $58,652,150 (173,692) ($2,629,332)
========= ======= ============ =========== ======== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 8
ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,484,501 $ 1,864,202
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,730,147 1,703,635
Amortization 91,780 171,320
Increase in allowance for doubtful accounts 50,000
Gain on sale of assets (3,100)
Changes in assets and liabilities:
Increase in accounts receivable (469,552) (565,028)
(Increase) decrease in prepaid expenses and
other assets (545,363) 132,894
Increase (decrease)in accounts payable and
accrued expenses 65,176 (455,436)
Increase in contract deposits 74,302 66,522
Increase in income taxes payable 795,382 818,986
Increase in deferred income taxes 94,608 92,323
- ---------------------------------------------- ------------ -----------
Net cash provided by operating activities 3,370,981 3,826,318
- ---------------------------------------------- ------------ -----------
Cash flows from investing activities:
Purchases of held to maturity securities (14,881,349) (3,572,865)
Proceeds from maturity of held to
maturity securities 14,755,234 3,475,933
Proceeds from sale of assets 3,100
Increase in equipment deposits (900,000)
Additions to property, plant and
equipment (546,789) (699,766)
Additions to radioisotope (776,815) (698,306)
Other 15,592 5,983
- ---------------------------------------------- ------------ -----------
Net cash used in investing activities (2,334,127) (1,485,921)
- ---------------------------------------------- ------------ -----------
Cash flows from financing activities:
Payment of long-term debt (100,000) (325,000)
Purchases of treasury stock (755,874)
Costs of New York Stock Exchange listing (93,099)
Proceeds of stock options exercised and
employee stock purchases 143,118 87,459
- ---------------------------------------------- ------------ -----------
Net cash provided by (used in) financing
activities 43,118 (1,086,514)
- ---------------------------------------------- ------------ -----------
Net increase in cash and cash equivalents 1,079,972 1,253,883
Cash and cash equivalents at beginning of
period 4,860,088 5,961,473
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Cash and cash equivalents at end of period $ 5,940,060 $ 7,215,356
- ---------------------------------------------- ------------ -----------
Supplemental cash flow information:
Cash paid for interest (net of amounts
capitalized) $ 91,126 $ 105,521
- ---------------------------------------------- ------------ -----------
Cash paid for income taxes $ 104,935 $ 349,619
- ---------------------------------------------- ------------ -----------
Supplemental non-cash investing activities
Additions to radioisotope $ 180,440
- ---------------------------------------------- ------------ -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
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<PAGE> 9
ISOMEDIX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The interim consolidated financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of the
Company's management, necessary for a fair statement of results for the periods
presented. Operating revenues and net income for any interim period are not
necessarily indicative of results for a full year.
2. Earnings per share have been computed based upon the weighted average number
of shares of common stock outstanding during each period. For the three months
ended March 31, 1996 and 1995, the numbers of shares used in computing earnings
per share were 7,191,625 and 7,265,923, respectively.
3. As of March 31, 1996, debt securities had a carrying value of $17,129,444 and
a market value of $17,126,352. The market value is calculated using information
provided by outside quotation services. The Company's investments consist of
debt instruments from federal, various state and municipal issuers with maturity
dates not exceeding one year.
Gross unrealized losses were $28,226 at March 31, 1996, compared to $233,582 at
March 31, 1995. Management has concluded that the decline in fair value is
temporary and, therefore, no adjustment to the cost basis of the investments has
been recorded.
4. The Company has reclassified certain prior period amounts to conform with the
1996 presentation.
5. In April, 1996, the Company made a decision to establish two fully
operational validation service offices in New Jersey and Southern
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<PAGE> 10
California. As part of this process, the headquarters of Skyland will
be relocated from Bozeman, Montana to Whippany, New Jersey. Each regional
operation will be in proximity to pharmaceutical industry concentration and
will have the full complement of personnel and test equipment to conduct full
scale validation projects. The benefits derived from this decision are greater
access to Skyland's resources, reduction of travel costs of personnel and
greater flexibility in the scheduling and performance of validation projects.
Throughout the remainder of 1996, the Company will incur approximately
$600,000 of expenses, on a pre-tax basis, relating to the above.
The foregoing paragraph contains forward looking information concerning the
Company's expected future expenditures for fiscal 1996 in connection with the
establishment of two new validation service offices and relocation of the
headquarters of the Company's Skyland subsidiary. The forward looking
statements are necessarily estimates and reflect the Company's best judgement
based upon current information. Factors which could cause actual expenditures
to differ from those estimated by the Company include an unanticipated delay in
implementing the establishment of the offices and the headquarters relocation.
6. In 1996 the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation." ("SFAS 123"). SFAS 123
establishes a fair value method for accounting for stock-based compensation
plans either through recognition or disclosure. SFAS 123 is effective for
financial statements for fiscal years beginning after December 15, 1995. The
Company plans to comply with the proforma disclosure method provisions of SFAS
123 and will disclose in its financial statements for the full year 1996 the
proforma net income and earnings per share amounts assuming the fair value
method was effective on January 1,
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1995. SFAS 123 is effective for the fiscal year ending December 31, 1996. The
adoption of SFAS 123 will not impact the Company's consolidated results of
operations, financial position or cash flows.
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<PAGE> 12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Consolidated sales increased approximately 1.0% to $11,569,535 in 1996 from
$11,455,026 in 1995. This increase resulted from a 3.6% increase in sales of
sterilization services to $10,792,732 in 1996 from $10,415,093 in 1995, due to
the recognition of progress billing toward an irradiator sold to the United
States Department of Agriculture for insect sterilization. This increase was
partially offset by increased competitive factors including pricing pressures
which are expected to continue during 1996. Sales of validation services by the
Company's Skyland subsidiary decreased to $776,802 in 1996 from $1,039,933 in
1995, due to a reduced need for validation services resulting from a slowdown in
construction and new equipment purchasing in the pharmaceutical industry.
Gross profit decreased to 47.3% of sales in 1996 from 51.7% in 1995. This
decrease is attributable to the reasons described above. This decrease was
partially offset by the growth in consolidated sales.
Selling, general and administrative expenses, as a percentage of sales, were
26.6% in 1996 compared to 24.8% in 1995. This increase was primarily due to
increased payroll and payroll related costs resulting from the additions to the
corporate management staff.
Consolidated operating income decreased 21.9% to $2,401,404 in 1996 from
$3,074,380 in 1995, and as a percentage of sales, to 20.7% in 1996 compared to
26.9% in 1995. Operating income from sterilization services (before corporate
overhead) decreased to 30.9% of that segment's sales in 1996 from 34.2% in 1995.
These decreases resulted from the factors described above. Operating income from
validation services (before corporate overhead)
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<PAGE> 13
decreased to a loss of $25,841 in 1996 from income of $136,395 in 1995,
primarily as a result of the decrease in sales.
Investment income increased to $191,910 in 1996 from $167,876 in 1995, primarily
as a result of higher effective yields received on invested securities.
Interest expense decreased to $119,146 in 1996 from $135,252 in 1995 as a result
of the payments of current maturities on long-term debt.
Net income decreased to $1,484,501 in 1996 from $1,864,202 in 1995. This
decrease in net income was attributable to the reasons described above. As a
percentage of sales, net income was 12.8% in 1996 compared to 16.4% in 1995.
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<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Company's liquidity was principally attributable to the cash
provided by operating activities, derived from net income for the period as
adjusted for non-cash expense items such as depreciation and amortization. This
increase was partially offset by cash used to fund investing primarily relating
to capital expenditures for the purchase of equipment and radioisotope for the
Company's existing sterilization facilities, and the construction of a new
sterilization facility in Libertyville, Illinois.
The Company has utilized industrial development revenue bonds and sales of
common stock to finance a substantial portion of the costs of constructing and
equipping (including the purchase of radioisotope) some of its sterilization
facilities. The obligations of the Company under the terms of the industrial
development revenue bonds are collateralized by the property, plant, equipment
and radioisotope purchased with the proceeds of such bonds and the agreements
relating to such bonds contain various restrictive covenants. More recently,
funds generated from operations have served as a source of funds used to finance
the construction and equipping of facilities.
The Company believes that funds from operating activities will be sufficient to
purchase radioisotope and to equip, on a year to year basis, the Company's
existing sterilization faciltities. The Company may utilize existing credit
facilities, which the Company expects to be able to renew annually, to fund the
working capital needs of the Company, as required. Expansion plans are expected
to be funded from the Company's investments, which will mature in amounts
necessary to cover the foreseeable expansion program of the Company. The
Company's capital expenditures for 1996 are
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anticipated to be approximately $10 to $13 million, including the continuing
construction and equipping of the Company's new sterilization facility in
Libertyville, Illinois, which is expected to become operational in the latter
part of 1996.
INFLATION
Inflation is not expected to have a significant impact on the Company's income,
particularly as the United States economy is presently experiencing a period of
low inflation. Based upon its experience since inception, the Company does not
expect that future increases in the cost of radioisotope, ethylene oxide gas or
other materials will be significant to its operations.
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<PAGE> 16
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
None to report.
Item 2 Changes in Securities
None to report.
Item 3 Defaults Upon Senior Securities
None to report.
Item 4 Submissions of Matters to a Vote of Security Holders
None to report.
Item 5 Other Information
None to report.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
XI(a) Statement Re: Computation of Earnings Per Share For
the Three Months Ended March 31, 1996 and 1995.
(Unaudited)
27 Financial Data Schedule
(b) Reports on Form 8-K:
During the three months ended March 31, 1996, the
registrant filed no reports on Form 8-K.
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EXHIBIT XI (a)
ISOMEDIX INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995.
(Unaudited)
Net income and common shares used in the calculation of earnings per share for
the three months ended March 31, 1996 and 1995, were computed as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
---------- ----------
<S> <C> <C>
Net Income $1,484,501 $1,864,202
========== ==========
Weighted average number
of common shares
outstanding during the
period: 6,992,746 7,030,750
Add: Shares issuable upon
assumed exercise or con-
version of stock options
and warrants 198,879 235,173
---------- ----------
Common Shares 7,191,625 7,265,923
========== ==========
Earnings per common share $ .21 $ .26
========== ==========
</TABLE>
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISOMEDIX INC.
(Registrant)
Date: 5-15-96 /s/ C. P. Truby
----------------------------
Charles P. Truby
Executive Vice President
and Chief Operating Officer
Date: 5-15-96 /s/ Thomas J. DeAngelo
----------------------------
Thomas J. DeAngelo
Vice President
Finance and Administration
and Chief Financial Officer
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<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 5940060
<SECURITIES> 17129444
<RECEIVABLES> 8868112
<ALLOWANCES> 400000
<INVENTORY> 0
<CURRENT-ASSETS> 32887471
<PP&E> 134171842
<DEPRECIATION> 56210254
<TOTAL-ASSETS> 114580598
<CURRENT-LIABILITIES> 3731982
<BONDS> 8500000
0
0
<COMMON> 71699
<OTHER-SE> 93728812
<TOTAL-LIABILITY-AND-EQUITY> 114580598
<SALES> 11569535
<TOTAL-REVENUES> 11569535
<CGS> 6095810
<TOTAL-COSTS> 6095810
<OTHER-EXPENSES> 3072321
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119146
<INCOME-PRETAX> 2474168
<INCOME-TAX> 989667
<INCOME-CONTINUING> 1484501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1484501
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>