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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_________to_________
Commission file number 0-12488
ISOMEDIX INC.
(Exact name of registrant as specified in its charter)
Delaware 22-1986189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Apollo Drive
Whippany, New Jersey 07981
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 887-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock $.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Title of class
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 as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Page 1 of ____ pages.
Index to Exhibits at page __.
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2
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing.
<TABLE>
<S> <C>
Aggregate market value as of March 21, 1997 .............$79,514,239
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value, as of March 21, 1997.......6,425,393
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein and the Part of the Form 10-K into which the
document is incorporated:
Annual Report to Stockholders for the fiscal year ended December 31,
1996 -- Part I, Part II and Part IV.
Proxy Statement dated March 31, 1997 -- Part III
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PART I
ITEM 1. BUSINESS.
General
Isomedix Inc. (together with its subsidiaries, where
appropriate, the "Company") has been engaged for more than 24 years in the
business of providing contract sterilization services to manufacturers of
pre-packaged products, such as healthcare and certain consumer products.
Although gamma radiation is the preferred method of
sterilization of healthcare and certain consumer products, there is a continuing
demand for contract ethylene oxide sterilization of those products which cannot
tolerate exposure to radiation. In recognition of a market opportunity for
technologically advanced ethylene oxide sterilization services, the Company
commenced the development of an ethylene oxide sterilization program in 1988 and
by February 1990 had two state-of-the-art ethylene oxide sterilization
facilities operational. In January 1993, another ethylene oxide facility
commenced operations at the Company's gamma radiation facility in Northborough,
Massachusetts. In December 1995, the Company purchased an existing ethylene
oxide sterilization facility in Temecula, California, from an unrelated party.
The addition of an ethylene oxide sterilization program has enabled the Company
to offer many customers a single source for most or all of their sterilization
requirements. The Company believes that its ethylene oxide technology offers
technical, environmental and worker safety advantages which are currently
unavailable at many existing ethylene oxide sterilization facilities in the
United States.
The Company has a network of eleven gamma facilities, five
ethylene oxide facilities (four of which are combined gamma/ethylene oxide
facilities), and one electron beam facility in the United States, Canada and
Puerto Rico.
Industry Overview and Company Strategy
A broad range of healthcare and certain consumer products need
to be free of objectionable microbial levels which is referred to as "sterile"
or to have acceptable microbial levels when sold as nonsterile product, such as
cosmetics and spices. The principal methods used to achieve sterility or
microbial reduction are ionizing radiation sterilization utilizing principally
gamma radiation from cobalt-60, electron beam sterilization and ethylene oxide
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sterilization utilizing gaseous ethylene oxide. Ethylene oxide sterilization was
first used commercially in the United States in the late 1940's and gamma
radiation sterilization was first used commercially in the United States in the
mid-1960's.
Although precise figures are difficult to determine, the
Company believes that for healthcare products the contract sterilization market
is divided approximately equally between the two methods. With the addition of
ethylene oxide sterilization facilities and a continuing commitment to radiation
sterilization, the Company believes that it has significantly increased the size
of its potential market. In addition, the Company is now able to offer its
customers the flexibility to choose the sterilization method best suited for
their particular product requirements.
Ionizing gamma radiation, which is similar to x-ray radiation,
is generated by the spontaneous decay of radioisotopes. As a result, the
radioisotopes must be supplemented regularly and eventually replaced. Since
gamma radiation is electro-magnetic in nature, and is not itself radioactive,
substances exposed to gamma radiation cannot become radioactive. Cobalt-60 is
the radioisotope used for the commercial processing of medical devices and other
products.
Ionizing gamma radiation is inherently reliable, predictable
and non-toxic and the only variable which must be controlled during
sterilization is the time of exposure of the product to the energy source. As a
result, the product is deemed to be sterile immediately after it is processed
upon confirmation that a predetermined dose of gamma radiation has been
delivered. Further, gamma radiation is able to penetrate all forms of packaging
material (including sealed foil, glass and metal containers) and to sterilize
the product uniformly without leaving chemical residues or significantly raising
product temperature.
Radiation from electron beam accelerators is also ionizing in
nature, but, with generally lower mass penetration capability. It differs from
gamma radiation, however, in that its generation relies on electrical power
input rather than the spontaneous decay of radioisotope.
The Company believes, however, that ethylene oxide
sterilization will continue to be preferred for certain products that are not
well-suited for radiation sterilization. Examples of such products include:
materials
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that discolor when exposed to gamma radiation, such as certain cotton products;
products treated with special compounds, such as lubricated needles and
catheters; and products consisting of an array of components that are not
otherwise compatible with radiation, such as certain pre-packaged custom
surgical procedure trays and kits. Custom procedure trays and kits often contain
the medications required for a specific surgical procedure which cannot be
readily radiation sterilized. Most custom procedure trays and kits are currently
sterilized with ethylene oxide.
Developments in governmental regulation of ethylene oxide in
the 1980's forced changes in the technology of ethylene oxide processing, which
created an opportunity for the Company to capture a significant share of the
contract ethylene oxide sterilization market in the United States. Since 1988
the Company has pursued a program to develop contract ethylene oxide
sterilization technology, and hired personnel with substantial expertise in
ethylene oxide sterilization to implement this program.
First, ethylene oxide has been identified as a mutagenic
substance with possible carcinogenic properties, and its use has become subject
to more stringent regulation by the Occupational Safety and Health
Administration ("OSHA"), the Environmental Protection Agency (the "EPA") and
various state agencies. These regulations included stricter limits on
permissible worker exposure levels to ethylene oxide and limits on permissible
emissions of ethylene oxide into the earth's atmosphere. The EPA published
regulations controlling ethylene oxide emissions from industrial sterilizers in
February 1994 which became effective in November 1994.
In addition, environmental concerns with respect to Freon, a
chlorofluorocarbon which had traditionally been used to dilute ethylene oxide,
has also had an impact on ethylene oxide production. Currently, almost all
production and importation of Freon is banned in the United States. Although it
remains legal to purchase and sell Freon, its increasingly limited supply has
led to a significant escalation in cost. In addition, Freon is subject to an
excise tax of $5.35 per pound. Replacement diluents are now available in
commercial quantities, although their costs may be substantially higher than
traditional Freon. As an alternative to the use of Freon or other diluents,
ethylene oxide may be utilized in its 100% pure form, which requires special
handling procedures and equipment. All of the Company's ethylene oxide
facilities are equipped with the advanced technology 100% pure ethylene oxide
processes.
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Many device manufacturers which previously operated in-house
ethylene oxide facilities have found that it is uneconomical to undertake the
design and capital costs required to upgrade or replace their existing
facilities to meet current and impending regulations. Consequently, many
companies have and continue to convert to contract sterilization for their
sterilization requirements.
The Company believes that its innovative approach to ethylene
oxide sterilization, which does not utilize Freon, significantly reduces the
disadvantages associated with traditional ethylene oxide processing. The
Company's ethylene oxide facilities are highly automated, and are designed to
accelerate sterilization (as evidenced by its already proven ability to
significantly reduce product sterilization cycle times in a number of
instances), to minimize ethylene oxide residues in products, to minimize worker
exposure to ethylene oxide and virtually to eliminate ethylene oxide emissions
into the atmosphere. The Company's facilities use undiluted ethylene oxide (or,
for processing of vacuum sensitive products, an ethylene oxide/nitrogen gas
mixture) rather than the traditional ethylene oxide/Freon gas mixture. An
automated and computer controlled product handling system keeps worker exposure
to ethylene oxide well within existing and anticipated regulatory guidelines.
The Company's ethylene oxide facilities utilize turbulent air circulation, as
well as precise temperature controls and a catalytic oxidation system, to
minimize ethylene oxide residue levels in sterilized products. The ethylene
oxide exhaust gas from the sterilization process is converted to carbon dioxide
and water in a thermal oxidizing flare.
Sophisticated temperature monitoring systems enable the
Company to monitor the temperature of the ethylene oxide operation in real time
for process validation. The resulting data can be analyzed and used in part in
the determination of product release and the Company uses analytical techniques
similar to those used in its gamma radiation sterilization business with the
goal of achieving the elimination/reduction of biological testing and/or product
quarantine after the completion of ethylene oxide processing.
The Company is currently establishing electron beam radiation
technology as a third sterilization modality. While electron beam radiation has
been available to sterilize medical devices for years, its use has been limited
due to technical limitations. Recent advances in the design of electron beam
accelerators have significantly increased the potential desirability of this
technology as a sterilization method. In addition, electron beam use for
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various industrial applications, such as material crosslinking, is significant
and continues to grow rapidly.
Gamma Radiation Sterilization Services
Gamma radiation sterilization services provided by the Company
include the sterilization of healthcare and consumer products which are labelled
as "sterile," products which require reduced microbial contamination, the
high-level radiation testing of materials and equipment used in nuclear
reactors, space exploration applications and certain industrial applications of
gamma radiation to alter or improve the physical properties of plastics.
The kinds of healthcare products processed by the Company
range from syringes, needles, scalpels and surgeons' gloves and gowns to
intravenous solution tubing sets and orthopedic implants. Since sterilization is
the final critical stage of manufacture, the Company is required to be
registered with the Food and Drug Administration (the "FDA") as a manufacturer
of medical devices. See "Governmental Regulation" below.
The Company currently has approximately 1,180 customers,
including many of the largest manufacturers of single-use medical devices, most
of which utilize the gamma irradiation service. Although some of the largest of
such manufacturers own and operate their own irradiators, the production levels
of the majority of manufacturing companies do not economically justify ownership
of an in-house gamma radiation sterilizer. The Company has found that it can
select a geographic region within which many small or several large
manufacturers are located or have distribution centers and build one irradiation
facility to service the region. It is able to pass on to the customer the
benefits associated with economies of scale achieved in a high volume
irradiation facility and in so doing can compete economically with other
sterilization methods. The Company expects that, at times, when one of its
larger customers reaches production levels which would economically justify the
conversion from contract radiation sterilization to in-house radiation
sterilization, the customer may do so. However, the Company does provide
sterilization services to certain large companies which operate their own
irradiators, when transportation costs from a distant production location to the
in-house irradiator are prohibitive, when the in-house irradiator cannot satisfy
production peaks, or when the products or packaging involve unusual technical
requirements. In one instance a major customer determined that it was more
economical to close down its own in-house
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irradiator in favor of utilizing the radiation services provided by the Company.
A part of the Company's gamma radiation sterilization activity
is in the area of consumer products which historically were either sterilized
with ethylene oxide or were not sterilized at all. Bandages, cotton balls, empty
milk cartons, food packaging materials, baby bottle nipples, and water-filled
teething rings are examples of items which the Company currently processes for a
number of manufacturers. In addition, the Company sterilizes bulk items such as
talc, starch, titanium dioxide and iron oxide pigments and finished products
such as brushes and applicators for the cosmetics industry.
The Company contracts with its customers to expose their
products to dosages of gamma radiation specified by the customer. The cost to
customers of the gamma radiation services provided by the Company varies
depending on such factors as the volume and density of the product to be
irradiated, and the radiation dosage and dosage uniformity required. The Company
assumes no responsibility for the effects of radiation on the product exposed or
the failure of such dosage to sterilize or otherwise have the effect desired by
the customer. The Company is not aware, however, that any customer has
experienced any claim with respect to the lack of sterility of any product
irradiated by the Company.
In the gamma radiation sterilization process, the material to
be sterilized is placed in containers and is conveyed through the irradiator
past the cobalt-60 source for exposure to a predetermined amount of radiation
energy. The total exposure time of the product to the source material depends on
the amount of cobalt-60 in use, the required dose and the density of the
material exposed. After exposure to gamma radiation, the product is conveyed
into a storage area from which it may, in most cases, be immediately released
for distribution to end users. When not in operation, the cobalt-60 source
material is immersed in a 25-foot deep pool of water which absorbs the energy
being emitted. During use, six-foot thick concrete shielding protects workers
from radiation.
Since its inception, the Company has purchased the majority of
its cobalt-60 from MDS Nordion Inc., successor to Atomic Energy of Canada
Limited, the world's principal source of cobalt-60. The Company believes that
Nordion has the capacity to produce several times the world's anticipated
requirements for cobalt-60 for the foreseeable future. In addition, the Company
has purchased smaller
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amounts of its cobalt-60 requirements from Neutron Products Inc., a United
States based supplier. More recently, another major supplier of cobalt-60,
Puridec Corporation, has started to supply cobalt-60 in North America. The
Company contracts with Nordion, Neutron Products and Puridec for the purchase
and installation of the cobalt-60 in the irradiators and for the eventual
disposal of "spent" cobalt-60. Nordion also manufactures the irradiator
mechanisms used by the Company at all of its production facilities.
Ethylene Oxide Sterilization Services
The Company's ethylene oxide sterilization technology involves
three basic processing phases: preparation of the product in a conditioning room
to achieve optimal temperature and humidity; exposure of the product to ethylene
oxide in a sterilization chamber; and reduction of ethylene oxide residues in an
aeration cell to minimal levels in the products.
In the Company's facilities, a computer controlled conveyor
system automatically transfers the product directly from the conditioning room
into the sterilization chamber and then, upon completion of sterilization, the
conveyor system transfers the product into the aeration cell. The Company's
ethylene oxide facilities use a sophisticated infrared telemetry system which
provides real time monitoring of product temperature at numerous checkpoints.
During the conditioning phase, the product is prepared for
sterilization by raising its temperature and humidity to optimal levels at which
microbes are more readily susceptible to the toxic properties of ethylene oxide.
A turbulent air circulation system ensures uniform temperature and humidity
distribution.
During the sterilization phase, the product is exposed to
controlled amounts of ethylene oxide under precise conditions of pressure,
temperature, humidity and dwell time. Each ethylene oxide facility is designed
to accommodate three or four sterilization chambers. Depending upon the
anticipated volume of product to be processed annually, one or two chambers may
be installed when a facility commences operations, with others added as the
volume of business increases. Each sterilization chamber employs a circulation
system to assure uniform temperature and humidity distribution, improved gas
penetration, reduced product temperature stabilization time and reduced
sterilization cycle time. A high efficiency evacuation system reduces the time
of the sterilization cycle by
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reducing the time necessary to remove ethylene oxide from the sterilization
chamber. Rate controls on pressure changes during processing minimize packaging
stress. The sterilization chamber and the room in which it is located are
specifically designed to minimize the risks arising out of the potentially
flammable and explosive nature of ethylene oxide in its pure form.
During the aeration phase, ethylene oxide residues remaining
on the product after sterilization are reduced to minimal levels by subjecting
the product in the aeration cell to turbulent air circulation at elevated
temperatures in conjunction with a highly efficient catalytic oxidation system
which converts the ethylene oxide into carbon dioxide and water.
The Company anticipates that its ethylene oxide facilities
will be part of combined irradiation/ethylene oxide facilities although the
Company also establishes additional free-standing ethylene oxide and radiation
facilities depending on regional market conditions. The combined facilities are
designed to be administratively cost effective in that the key management and
sales personnel required for either method of sterilization manage the combined
facilities.
Ethylene oxide and nitrogen gas are the two principal
materials which the Company utilizes in its ethylene oxide sterilization
facilities. Both are available through domestic sources.
Backlog
At December 31, 1996, the Company had a backlog for contract
sterilization services of approximately $53,217,302 as compared with $51,617,000
at the same time in the preceding year. The Company expects approximately 46% of
all of such backlog to be filled during 1997.
Marketing and Sales
The Company markets its contract sterilization services
primarily to manufacturers of single-use medical devices and consumer products.
The Company's marketing of its gamma radiation services
emphasizes technical assistance to customers in all aspects of sterilization and
participation by facility and corporate staff members on technical committees
responsible for the implementation of regulations pertaining to the
sterilization of medical products, as well as the more
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conventional activities of customer contact and advertising. The Company's
salespersons and senior management draw upon their extensive backgrounds in
radiation, ethylene oxide processing, engineering, microbiology, packaging,
material compatibility and regulatory compliance to provide customers with a
full range of services. See "Competition" below.
The marketing of ethylene oxide services closely parallels the
marketing of gamma radiation services and frequently is directed to the same
customers. The Company markets its ethylene oxide capabilities to existing
ethylene oxide users, concentrating primarily on manufacturers currently
utilizing in-house facilities who are confronted with the high costs associated
with the increasingly complex regulatory and technological problems related to
ethylene oxide sterilization. Additionally, the Company's marketing efforts
focus on the Company's ability to offer its customers a single source for most
or all of their sterilization requirements and also stress the technological
advantages of the Company's ethylene oxide sterilization system over those
provided by its competitors.
Competition
In gamma radiation sterilization, the Company competes with
other gamma irradiation service companies, none of which are larger than the
Company in terms of number of gamma irradiation facilities. The Company also
competes with companies that provide sterilization processes other than gamma
radiation (including electron beam and ethylene oxide processing). The primary
competition comes from companies that sterilize products in-house (with about a
50% combined market share), thereby bringing the Company into competition with
businesses having substantially larger assets, sales and working capital.
Generally, the Company competes on the basis of expertise,
quality, customer service, price, geographic proximity to the customer's
manufacturing or distribution system and ability to provide additional services,
such as warehousing and distribution, as needed. In recent years, price
competition has intensified. However, the Company believes that its reputation
as a leader in quality, regulatory compliance and technology in gamma radiation
sterilization services, in addition to price, allows the Company to remain
competitive with other contract sterilization providers, particularly in the
case of products which require strict quality control standards and high
sterility assurance levels.
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In ethylene oxide sterilization, the Company competes with
three established service companies, each of which operate multiple facilities
and one of which is substantially larger than the Company in the ethylene oxide
sterilization market. The Company also competes with numerous smaller service
companies. In addition, almost half of the total sterilization business is
performed in-house and, therefore, represents the forecasted new business
opportunity. As in the gamma sterilization market, the Company competes in the
ethylene oxide sterilization market on the basis of expertise, quality,
regulatory compliance, customer service, price and geographic proximity to the
customer's manufacturing or distribution system.
Foreign Operations
The Company's Canadian gamma irradiation facility commenced
operations in April 1982 providing the Company with an important market for its
services. There are no unusual or special risks associated with this operation
which are not characteristic of any United States business operating in Canada.
See Note 16 to Notes to Consolidated Financial Statements referred to in Part
IV, Item 14(a)(1) below.
Personnel
The Company employs approximately 346 persons in its
sterilization services business. The Company's employees are not covered by a
collective bargaining agreement with the exception of approximately 37 employees
at the Whippany, New Jersey and Northborough, Massachusetts facilities. The
Company considers its relationship with its employees to be satisfactory.
Governmental Regulation
The construction and operation of gamma irradiation facilities
such as those operated by the Company are regulated by the United States Nuclear
Regulatory Commission, or in some cases by various state regulatory agencies and
authorities which have assumed the regulatory function from the Commission. In
addition, the Company is required to register its sterilization facilities with
the FDA as manufacturers of medical devices and drugs.
The construction and operation of ethylene oxide facilities by
the Company are regulated by various state environmental and pollution control
agencies, as well as by the EPA, the FDA and OSHA. The use of ethylene oxide is
subject to a variety of existing and proposed regulations
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limiting levels of worker exposure to ethylene oxide, ethylene oxide residues on
sterilized products and ethylene oxide emissions into the atmosphere. See
"Industry Overview and Company Strategy." The Company believes that its ethylene
oxide technology and facility design will permit it to comply with all such
existing and proposed regulations.
The Company has received all licenses and permits necessary to
conduct its current sterilization business and believes that it will be able to
obtain any permits necessary for the future conduct of its sterilization
business.
The gamma radiation and ethylene oxide sterilization
activities of the Company produce virtually no harmful solid, liquid or gaseous
effluents or pollutants.
Food Preservation
A potential market for the Company continues to be the gamma
radiation preservation and disinfestation of food products. Approximately 40
countries have approved gamma radiation for limited commercial processing of
food and food ingredients. The need for further consumer education is an
important factor in gaining public acceptance of the process in the United
States and Canada. Increased public awareness of the existence of harmful
pathogenic organisms in raw red meat and poultry may assist in gaining public
acceptance of gamma radiation for the processing of food.
In 1990, the FDA announced clearance for the irradiation of
poultry to eliminate salmonella, campylobacter and listeria. In 1992, the United
States Department of Agriculture published the terms and conditions under which
poultry can be irradiated. This clearance was followed by successful market
tests of irradiated poultry during 1993. Subsequently, only limited commercial
sales of irradiated poultry have taken place. In addition, public apprehension
associated with irradiation of food products is diminishing due to more readily
available information on the subject of food irradiation, and as concern over
contaminated red meats, poultry and seafood in our food supply increases. In
July 1994, the Company prepared and submitted to the FDA a petition for
clearance to irradiate fresh packaged red meats in order to eliminate E. coli
and other harmful pathogens. The Company has received indications that this
clearance is expected to be obtained sometime during the latter part of 1997.
Disinfestation of spices using gamma radiation was approved by
the FDA in 1986. This method of disinfestation
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is in use today and may prove to be the optimum method of microbial control as
there is serious concern that the current method of disinfestation of spices,
which uses ethylene oxide, leaves toxic residues on the spices.
The long-term course of regulatory policy and consumer
reaction cannot be predicted and, although regulatory approvals have been
forthcoming, there can be no assurance that the use of gamma radiation for the
processing of food will ultimately prove commercially feasible in the United
States or Canada.
ISO 9001 Registration
During 1995, the Company was approved for ISO 9001
registration by accredited Quality Registrar, KPMG Peat Marwick. ISO 9001
registration confirms that the quality systems used by the Company meet the
requirements as described by the American National Standards Institute and the
American Society of Quality Control. Of the ISO 9000 standards, the ISO 9001 is
the most comprehensive in scope and the most difficult to achieve. Demonstrated
compliance with these requirements is becoming a requirement for doing business
in Europe, Japan, Australia and Canada and is fast becoming a standard of
performance for many suppliers doing business in the United States.
Validation Services
The Company's subsidiary, Skyland Scientific Services Inc.,
primarily provides validation services to assist manufacturers of pharmaceutical
and medical device products in complying with FDA Good Manufacturing Practices
and industry standards.
Skyland competes with other companies offering substantially
the same services, including several large architect-engineering firms. Such
firms may be employed by a customer to provide a variety of services, including
design and construction of facilities, in addition to validation services.
Skyland competes on the basis of its reputation, expertise, quality and speed of
service and price. Skyland has approximately 23 employees.
During December 1996, the Company adopted a plan of disposal
via orderly liquidation of Skyland, effective December 31, 1996. Skyland
provided contract consulting, calibration and validation services to assist
manufacturers of healthcare products in complying with Good Manufacturing
Practices established by industry and government. The disposal of Skyland is
expected to be completed by the end
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of the second quarter of 1997. The results of Skyland and the associated loss on
disposal have been accounted for as a discontinued operation. See Note 2 to
Notes to Consolidated Financial Statements referred to in Part IV, Item 14(a) 1
below.
ITEM 2. PROPERTIES.
The Company has a network of eleven gamma facilities, five
ethylene oxide facilities (four of which are combined gamma/ethylene oxide
facilities) and one electron beam facility in the United States, Canada and
Puerto Rico. The eleven gamma facilities have an aggregate design capacity of
41,500,000 curies of cobalt-60. The Company's ethylene oxide facilities
currently have installed fifteen ethylene oxide vessels which allow for the
processing of approximately seventeen million cubic feet of products annually.
The Company's gamma irradiation facilities are designed and
built to accommodate anticipated processing requirements for twenty or more
years. Generally, only that amount of cobalt-60 needed for anticipated or actual
initial processing requirements is actually installed. As requirements grow,
additional cobalt-60 can be added up to the facility's design capacity.
Additional cobalt-60 increases the amount of energy emitted thus reducing the
time the product needs to be exposed and thereby increasing the facility's
capacity to process product.
The Company's executive offices are located in a Company-owned
building at 11 Apollo Drive, Whippany, New Jersey.
All of the properties of the Company are well maintained and
in good condition. The Company believes that these properties are adequate and
suitable for the present needs of the businesses presently conducted therein.
The Company has utilized Industrial Development Revenue Bond
("IDRB") financings to finance a substantial portion of the costs of
constructing and equipping (including the initial purchase of cobalt-60) some of
its sterilization facilities. The obligations of the Company under the terms of
the IDRB financings are collateralized by real and personal property (see Note 4
to Notes to Consolidated Financial Statements referred to in Part IV, Item
14(a)1 below). Internally generated funds and sales of common stock have served
as additional sources of funds.
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ITEM 3. LEGAL PROCEEDINGS.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
Executive Officers of the Registrant
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AGE AT
NAME POSITION WITH THE COMPANY DECEMBER 31, 1996
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John Masefield Chairman of the Board 63
George R. Dietz Senior Vice President 65
Charles P. Truby Executive Vice President and Chief Operating 59
Officer
Thomas J. DeAngelo Vice President-Finance and Administration and 42
Chief Financial Officer
</TABLE>
John Masefield has been Chairman of the Company since its
inception in 1972 and President and Chief Executive Officer of the Company from
its inception in 1972 until August 1995 and from February 1997 until the
present. Since December 1987, Mr. Masefield has also been Chairman of Skyland.
Between 1960 and 1964, Mr. Masefield was the head of irradiator design for
Atomic Energy of Canada Limited. In that capacity, he was responsible for the
design and development of the first commercial gamma irradiation sterilization
facility in North America for the gamma radiation sterilization of medical
devices. He was also responsible for the design, development and operation of
the first commercial food gamma irradiation facility in North America. Mr.
Masefield has been a lecturer on industrial uses of ionizing radiation at McGill
University in Montreal, Canada and Carleton University in Ottawa, Canada, has
authored or co-authored numerous articles and studies on the subject, has been
invited by the International Atomic Energy Agency to lecture on radiation
processing in the Far East for the past several years, is the Convener of the
Working Group on Radiation Sterilization to the International Standards
Organization on Radiation Sterilization, is the leader of the U.S. Delegation to
the International Standards Organization's Technical Committee on Sterilization
Standards, is the present Co-Chairman of the Radiation Sterilization Committee
of the Association for the Advancement of Medical Instrumentation (AAMI) and is
on the
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Board of Directors of AAMI and has participated on various other United States
and Canadian committees that promulgate recommendations and procedures for the
commercial uses of ionizing radiation. Mr. Masefield has a degree in mechanical
engineering.
George R. Dietz has been an executive officer of the Company
since 1972 and a Vice President of the Company since 1983. He is currently
Senior Vice President of the Company. Mr. Dietz also served as Secretary of the
Company from April 1983 through April 1987. Between 1960 and 1969 Mr. Dietz
served as project manager for the United States Atomic Energy Commission's food
irradiation programs, as the United States Army liaison officer to the United
States Atomic Energy Commission, and as project manager for the design,
construction and operation of the first large scale pilot food gamma irradiation
facility in North America. Between 1967 and 1969 he directed the food
irradiation engineering activities at Brookhaven National Laboratories. Mr.
Dietz has also authored and co-authored numerous articles and studies on
commercial uses of ionizing radiation and has participated on various United
States committees that promulgate recommendations and procedures for the
commercial uses of ionizing radiation and irradiator operational safety.
Charles P. Truby, Ph.D. has been Executive Vice President and
Chief Operating Officer since March 1995. Dr. Truby joined the Company from
Sherwood Medical Company where he was Vice-President of Quality Management for
four years. Prior to that, he was employed by Becton Dickinson for 14 years in a
number of quality management positions. Dr. Truby received his Doctorate degree
in bacteriology and biochemistry at the University of Houston and his Masters
degree from Arizona State University.
Thomas J. DeAngelo joined the Company in 1982 and has been an
officer of the Company since April 1983. He is currently Vice President-Finance
and Administration, Treasurer and Secretary of the Company. He has been the
Chief Financial Officer of the Company since 1993. Mr. DeAngelo served as
Controller of the Company from April 1983 through April 1987 and as Chief
Operating Officer of the Company from September 1993 to February 1994. Mr.
DeAngelo is a Certified Public Accountant.
<PAGE> 18
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
For information concerning this item see page 20 of the Annual
Report to Stockholders for the fiscal year ended December 31, 1996 (the "Annual
Report to Stockholders"), which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
For information concerning this item see page 2 of the Annual
Report to Stockholders, which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
For information concerning this item see pages 4 through 6 of
the Annual Report to Stockholders, which information is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For information concerning this item, see pages 7 through 18 of
the Annual Report to Stockholders and Item 14(a) below, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE> 19
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information concerning this item, see text under the caption
"Election of Directors" in the Proxy Statement dated March 31, 1997 (the "Proxy
Statement"), and "Executive Officers of the Registrant" in Part I hereof, which
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see text under the
captions "Executive Compensation," "Compensation of Directors," "Employment
Agreements," "Compensation and Stock Option Committee Interlocks and Insider
Participation," "Performance Graph" and "Report of the Compensation and Stock
Option Committee" in the Proxy Statement, which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see text under the
captions "Security Ownership of Certain Beneficial Owners" and "Security
Ownership of Management" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see text under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement, which
information is incorporated herein by reference.
<PAGE> 20
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements:
The consolidated financial statements of the Company and its
subsidiaries incorporated by reference in this Annual Report on Form 10-K are
listed in the attached Index to Consolidated Financial Statements and Schedules.
2. Financial Statement Schedules:
The consolidated financial statement schedules of the Company
and its subsidiaries filed in this Annual Report on Form 10-K are listed in the
attached Index to Consolidated Financial Statements and Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report
on Form 10-K are listed in the attached Index to Exhibits. Exhibits 10(b),
10(c), 10(d), 10(e), 10(f), 10(g), 10(dd), 10(ee), 10(gg), 10(hh), 10(ii) and
10(jj) are the management contracts and compensatory plans or arrangements
required to be filed as part of this Annual Report on Form 10-K.
(b) Current Reports on Form 8-K:
None
<PAGE> 21
21
POWER OF ATTORNEY
The Registrant and each person whose signature appears below
hereby appoint John Masefield and Thomas J. DeAngelo as attorneys-in-fact with
full power of substitution, severally, to execute in the name and on behalf of
the Registrant and each such person, individually and in each capacity stated
below, one or more amendments to this Annual Report on Form 10-K, which
amendments may make such changes in this Report as the attorney-in-fact acting
in the premises deems appropriate and to file any such amendment to this Report
with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 31, 1997
ISOMEDIX INC.
By /s/ John Masefield
--------------------------
John Masefield
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Dated: March 31, 1997 By /s/ John Masefield
--------------------------
John Masefield
Chairman of the Board,
President, Chief
Executive Officer
and Director
<PAGE> 22
22
Dated: March 31, 1997 By /s/ Peter Mayer
----------------
Peter Mayer
Director
Dated: March 31, 1997 By /s/ H. Stuart Campbell
-----------------------------
H. Stuart Campbell
Director
Dated: March 31, 1997 By /s/ Thomas M. Haythe
-----------------------------
Thomas M. Haythe
Director
Dated: March 31, 1997 By /s/ David M. Lank
-----------------------------
David M. Lank
Director
Dated: March 31, 1997 By /s/ Thomas J. DeAngelo
-----------------------------
Thomas J. DeAngelo
Vice President-Finance
and Administration,
Secretary, Treasurer,
Principal Accounting
Officer, Principal
Financial Officer
and Director
<PAGE> 23
Index to Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C>
3(a) Certificate of Incorporation of the Company, as amended (incorporated by --
reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
3(b) By-Laws of the Company, as amended, (incorporated by reference to Exhibit 3(b) to --
the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
4(a) Articles FOURTH, FOURTEENTH, SIXTEENTH, SEVEN-TENTH and EIGHTEENTH of the Certificate --
of Incorporation of the Company (incorporated by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
4(b) Articles III, IX, X, XI, XII, XIII, XIV and XVI of the By-Laws of the Company --
(incorporated by reference to Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
4(c) Specimen certificate representing common stock (incorporated by reference to --
Exhibit 4(c) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
4(d) Rights Agreement dated as of June 10, 1988 between Isomedix Inc. and Midlantic National --
Bank which includes the form of Certificate of Designation setting forth the terms of
the Series A Preferred Stock, par value $1.00 per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as
Exhibit C (incorporated by reference to Exhibit 4(k) to the Company's Annual Report
on Form 10- K for the year ended December 31, 1994).
4(e) Loan Agreement dated as of March 1, 1989 between Isomedix Operations Inc., a Delaware --
corporation, and Spartanburg County, South
</TABLE>
E-1
<PAGE> 24
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Carolina, a body politic and corporate and a political subdivision of the State of --
South Carolina (incorporated by reference to Exhibit 4(l) to the Company's Annual
Report on Form 10- K for the year ended December 31, 1994).
4(f) Trust Indenture dated as of March 1, 1989 between Spartanburg County, South Carolina, --
a body politic and corporate and a political subdivision of the State of South Carolina
and Mellon Bank, N.A., as trustee (incorporated by reference to Exhibit 4(m) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10(a) Lease dated May 27, 1981 between Village of Morton Grove and Isomedix, Inc., a Nevada --
corporation (incorporated by reference to Exhibit 10(r) to Registration Statement
No. 2-83697).
10(b) Employment Agreement dated as of February 1, 1988 by and between the Company and --
John Masefield (incorporated by reference to Exhibit 10(t) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992).
10(c) Employment Agreement dated as of February 1, 1988 by and between the Company and --
Thomas J. DeAngelo (incorporated by reference to Exhibit 10(u) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992).
10(d) Employment Agreement dated as of February 1, 1988 by and between the Company and --
George R. Dietz (incorporated by reference to Exhibit 10(v) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992).
10(e) Consulting Agreement, effective January 1993, between the Company and Sticco --
(incorporated by reference to Exhibit 10(w) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
10(f) 1982 Stock Option Plan, as amended (incorporated --
</TABLE>
E-2
<PAGE> 25
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
by reference to Exhibit 10(s) to the Company's Annual Report on Form 10-K for the year --
ended December 31, 1994).
10(g) 1992 Stock Option Plan (incorporated by reference to Exhibit 10(y) to the Company's --
Annual Report on Form 10-K for the year ended December 31, 1992).
10(h) Agreement and Plan of Reorganization dated as of September 30, 1987 among the Company, --
Isomedix Acquisition Corporation and Skyland (incorporated by reference to
Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(i) Loan Agreement dated as of October 1, 1988 between Isomedix Operations Inc., a Delaware --
corporation, and City of El Paso Industrial Development Authority, Incorporated,
a Texas non-profit corporation. (incorporated by reference to Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994)
10(j) Indenture of Trust dated as of October 1, 1988 between City of El Paso Industrial --
Development Authority Incorporated, a Texas non-profit corporation, and Mellon Bank,
N.A., as trustee (incorporated by reference to Exhibit 10(w) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10(k) Reimbursement Agreement dated as of October 1, 1988 by and among the Registrant, --
Isomedix Operations Inc., a Delaware corporation, and NCNB National Bank of North
Carolina (incorporated by reference to Exhibit 10(x) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10(l) Guaranty Agreement dated as of October 1, 1988 by and between the Registrant and NCNB --
National Bank of North Carolina, as issuer of the Letter of Credit (incorporated by
reference to Exhibit 10(y) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
</TABLE>
E-3
<PAGE> 26
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
10(m) Guaranty Agreement dated as of October 1, 1988 by and between the Registrant and --
Mellon Bank, N.A., as trustee under the Indenture (incorporated by reference to
Exhibit 10(z) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(n) Guaranty Agreement dated as of October 1, 1988 by and between Isomedix Investments, --
Inc., a Delaware corporation, and NCNB National Bank of North Carolina, as issuer of
the Letter of Credit (incorporated by reference to Exhibit 10(aa) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10(o) Guaranty Agreement dated as of October 1, 1988 by and between Isomedix Investments, Inc., --
a Delaware corporation, and Mellon Bank, N.A., as trustee under the Indenture
(incorporated by reference to Exhibit 10(bb) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10(p) Guaranty Agreement dated as of October 1, 1988 by and between Isomedix Management, Inc., --
a New Jersey corporation, and NCNB National Bank of North Carolina, as issuer of the
Letter of Credit (incorporated by reference to Exhibit 10(cc) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10(q) Guaranty Agreement dated as of October 1, 1988 by and between Isomedix Management, Inc., --
a New Jersey corporation and Mellon Bank, N.A., as trustee under the Indenture
(incorporated by reference to Exhibit 10(dd) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10(r) Remarketing Agreement dated as of October 1, 1988 between Isomedix Operations Inc., --
a Delaware corporation, City of El Paso Industrial Development Authority, Incorporated,
a Texas non-profit corporation, and NCNB National Bank of North Carolina (incorporated
by reference to Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
</TABLE>
E-4
<PAGE> 27
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
10(s) Placement Agreement dated as of October 1, 1988 among City of El Paso Industrial --
Development Authority, Incorporated, NCNB National Bank of North Carolina,
as Placement Agent, and Isomedix Operations Inc (incorporated by reference to
Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(t) Deed of Trust, Security Agreement and Assignment of Rents dated as of October 1, 1988 --
by and among Isomedix Operations Inc., a Delaware corporation, Mark E. Mendel, Mellon
Bank, N.A. and NCNB National Bank of North Carolina (incorporated by reference to
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(u) Reimbursement Agreement dated as of March 1, 1989 by and among the Company, Isomedix --
Operations Inc., a Delaware corporation, and NCNB National Bank of North Carolina
(incorporated by reference to Exhibit 10(hh) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10(v) Guaranty Agreement dated as of March 1, 1989 by and between the Company and NCNB --
National Bank of North Carolina, as issuer of the Letter of Credit (incorporated by
reference to Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10(w) Guaranty Agreement dated as of March 1, 1989 by and between the Company and Mellon Bank, --
N.A., as trustee under the Indenture (incorporated by reference to Exhibit 10(jj) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10(x) Guaranty Agreement dated as of March 1, 1989 by and between Isomedix Investments, Inc., --
a Delaware corporation, and NCNB National Bank of North Carolina, as issuer of the
Letter of Credit (incorporated by reference to Exhibit 10(kk) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
</TABLE>
E-5
<PAGE> 28
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
10(y) Guaranty Agreement dated as of March 1, 1989 by and between Isomedix Investments, Inc., --
a Delaware corporation, and Mellon Bank N.A., as trustee under the Indenture
(incorporated by reference to Exhibit 10(ll) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10(z) Guaranty Agreement dated as of March 1, 1989 by and between Isomedix Management, Inc., --
a Delaware corporation, and NCNB National Bank of North Carolina, as issuer of the
Letter of Credit (incorporated by reference to Exhibit 10(mm) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10(aa) Guaranty Agreement dated as of March 1, 1989 by and between Isomedix Management, Inc., --
a Delaware corporation, and Mellon Bank, N.A., as trustee under the Indenture
(incorporated by reference to Exhibit 10(nn) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10(bb) Placement and Remarketing Agreement dated as of March 1, 1989 between Isomedix Operations --
Inc., a Delaware corporation, Spartanburg County, South Carolina, a body politic and
corporate and an instrumentality of the State of South Carolina, and NCNB National Bank
of North Carolina as Placement Agent and Remarketing Agent (incorporated by reference to
Exhibit 10(oo) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(cc) Mortgage, Security Agreement and Assignment of Rents dated as of March 1, 1989 by and --
among Isomedix Operations Inc., a Delaware corporation, Spartanburg County, South
Carolina, a body politic and corporate and an instrumentality of the State of South
Carolina, Mellon Bank, N.A. and NCNB National Bank of North Carolina (incorporated by
reference to Exhibit 10(pp) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
</TABLE>
E-6
<PAGE> 29
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
10(dd) 1992 Supplemental Stock Option Plan (incorporated by reference to Exhibit 10(vv) to --
the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
10(ee) Special Bonus Plan for Directors and Senior Officers (incorporated by reference to --
Exhibit 10(ww) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10(ff) New York Stock Exchange, Inc. Listing Agreement (incorporated by reference to --
Exhibit 10(ss) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10(gg) Employment Agreement dated as of March 27, 1995 by and between the Company and --
Charles P. Truby (incorporated by reference to Exhibit 10(tt) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10(hh) Employment Agreement dated as of May 16, 1995 by and between the Company and John --
Masefield (incorporated by reference to Exhibit 10(uu) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10(ii) Employment Agreement dated as of August 21, 1995 by and between the Company and
Peter Mayer (incorporated by reference to Exhibit 10(vv) to the Company's Annual Report --
on Form 10-K for the year ended December 31, 1995).
10(jj) 1996 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the Company's --
Proxy Statement dated March 29, 1996).
11 Statement re: computation of earnings per share for the years ended December 31, 1996, --
1995 and 1994.
13 Annual Report to Stockholders for the fiscal year ended December 31, 1996. --
21 Subsidiaries of the Company. --
23 Consent of Coopers & Lybrand L.L.P. --
</TABLE>
E-7
<PAGE> 30
Index to Exhibits (cont'd)
<TABLE>
<CAPTION>
Page
----
<S> <C>
24 Power of Attorney (see "Power of Attorney" in Form 10-K). --
27 Financial Data Schedule. --
</TABLE>
E-8
<PAGE> 31
ISOMEDIX INC.
Index to Consolidated Financial Statements and Schedules
<TABLE>
<CAPTION>
Page Number
-----------------------------------
In Annual
Report to Included
Stockholders Herein
------------ ------
Financial Statements:
The following consolidated financial statements and notes, together with the
Report of Independent Accountants, included in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1996, are incorporated
herein by reference:
<S> <C> <C>
Consolidated Balance Sheets -- December 31, 1996 and 1995 7 --
Consolidated Statements of Income -- Years Ended December 31, 1996, 1995 and 1994 8 --
Consolidated Statements of Changes in Stockholders' Equity -- Years Ended December 31, 9 --
1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years Ended December 31, 1996, 1995 and 1994 10 --
Notes to Consolidated Financial Statements 11 --
Report of Independent Accountants 19 --
Financial Statement Schedules:
Report of Independent Accountants -- F-1
II - Valuation and Qualifying Accounts -- F-2
</TABLE>
All other schedules (Nos. I, III and IV) have been omitted because they are
inapplicable or the information is provided in the consolidated financial
statements, including the notes thereto.
<PAGE> 32
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
-----
To the Stockholders and
Board of Directors of Isomedix Inc.
Our report on the consolidated financial statements of Isomedix Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from Page 19
of the 1996 Annual Report to Shareholders of Isomedix Inc. and Subsidiaries. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the Index to Consolidated
Financial Statements and Schedules of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
February 11, 1997, except
for Note 20 for which the
date is March 19, 1997.
<PAGE> 33
SCHEDULE II
ISOMEDIX INC. and SUBSIDIARIES
VALUATION and QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Description Additions
----------- ---------
Allowance for Doubtful Accounts Balance at Charged to Charged to Balance at
Deducted from Beginning Costs and Other End of
Accounts Receivable of Period Expenses Accounts Deductions(1) Period
------------------- --------- -------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
1996 $350,000 $562,179 $522,179 $390,000
----
1995 $350,000 $245,523 $245,523 $350,000
----
1994 $250,000 $120,565 $ 20,565 $350,000
----
</TABLE>
- ----------
(1) Write-off of uncollectible accounts receivable.
F-2
<PAGE> 1
EXHIBIT 11
ISOMEDIX INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net income and common shares used in the calculation of earnings per share for
the three years ended December 31, 1996, 1995 and 1994, were computed as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income from continuing
operations $ 6,711,355 $ 7,250,643 $ 8,412,205
Discontinued operations (2,393,695) 48,862 404,555
----------- ----------- -----------
Net Income $ 4,317,660 $ 7,299,505 $ 8,816,760
=========== =========== ===========
Weighted average number of
common shares outstanding
during the year 6,921,026 6,993,520 7,132,669
Add: shares issuable upon
the assumed exercise or
conversion of options and
warrants 226,172 223,953 229,047
----------- ----------- -----------
Common Shares 7,147,198 7,217,473 7,361,716
=========== =========== ===========
Primary earnings (loss) per
common share: (1)
Continuing operations $ .94 $ 1.00 $ 1.14
Discontinued operations (.34) .01 .06
----------- ----------- -----------
Net income $ .60 $ 1.01 $ 1.20
=========== =========== ===========
</TABLE>
- ---------------
(1) Fully diluted earnings per common share is equivalent to primary earnings
per common share.
<PAGE> 1
[ISOMEDIX LOGO]
...inspired by,
recognized for,
success through,
dedicated to...QUALITY
1996
ANNUAL REPORT
<PAGE> 2
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
Isomedix Inc. and Subsidiaries (the "Company") provides contract
sterilization services to manufacturers of pre-packaged health care products
that need to be rendered safe for their intended use, which is often referred to
as "sterile". Also, the Company processes certain consumer products and food for
disinfestation, sanitization and microbial reduction.
The Company utilizes radiation and ethylene oxide in its operations, and
it is the only company in America offering both modalities of contract
sterilization.
The combination of gamma radiation and ethylene oxide operations enables
the Company to offer many customers a single source for most or all of their
sterilization requirements.
Isomedix has a one-of-a-kind Gamma Radiation Test Center for projects
including materials compatibility, dose setting and dose audits. Also, the
Company has a technically advanced Ethylene Oxide Test Center which provides a
full range of technical services to customers including cycle development for
new products, cycle optimization for existing products, cycle validation, pilot
vessel capabilities and small volume production capabilities.
Additionally, the Company is expanding its range of sterilization
modalities with the establishment of an advanced design electron beam facility
in Illinois.
The Company has a network of 11 gamma facilities, 5 ethylene oxide
facilities (4 of which are combined gamma/EtO) and 1 electron beam facility in
the United States, Canada and Puerto Rico. The Company is considering further
expansion of its network.
1
<PAGE> 3
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FIVE-YEAR SELECTED FINANCIAL DATA
For the years ended December 31
(In thousands, except per share and ratio amounts)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Sales $ 45,233 $ 42,122 $ 43,065 $39,551 $33,231
Gross profit 23,053 22,048 23,742 21,921 19,034
Operating income 10,746 11,593 13,805 12,335 11,362
Income from continuing operations 6,711 7,251 8,412 7,603 7,548
Discontinued operations (2,393) 49 405 372 207
Net income 4,318 7,300 8,817 7,975 7,755
- --------------------------------------- -------- -------- -------- ------- -------
SHARE DATA:
Weighted average number of common
shares outstanding during the year 7,147 7,217 7,362 7,356 7,171
Earnings (loss) per common share:
Continuing operations $ .94 $ 1.00 $ 1.14 $ 1.03 $ 1.05
Discontinued operations (.34) .01 .06 .05 .03
Net income $ .60 $ 1.01 $ 1.20 $ 1.08 $ 1.08
Market price per common share:
High $ 16.13 $ 17.50 $ 19.75 $ 27.75 $ 27.75
Low $ 13.00 $ 12.75 $ 14.75 $ 13.88 $ 16.00
End of year $ 13.00 $ 14.38 $ 15.75 $ 19.00 $ 27.25
- --------------------------------------- -------- -------- -------- ------- -------
FINANCIAL CONDITION:
Working capital $ 27,225 $ 27,945 $ 23,844 $20,024 $15,322
Capital expenditures 11,789 14,863 6,297 12,609 21,925
Total assets 115,620 112,024 106,590 98,962 90,289
Long-term debt 8,000 8,600 9,100 10,025 11,400
Stockholders' equity 94,360 92,173 85,740 78,172 69,051
Long-term debt-to-equity ratio .08:1 .09:1 .11:1 .13:1 .17:1
Book value per common share $ 13.80 $ 13.20 $ 12.17 $ 10.98 $ 9.82
- --------------------------------------- -------- -------- -------- ------- -------
</TABLE>
2
<PAGE> 4
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
TO OUR STOCKHOLDERS:
Isomedix will celebrate its 25th anniversary in 1997. For a quarter of a century
we have been successfully recognized for providing quality contract
sterilization services. Our Company was founded on the basis of providing high
technology leadership and quality service at reasonable prices to our customers.
We remain dedicated to our philosophy of "total quality customer service".
We are the only gamma and ethylene oxide contract sterilization company with
ISO 9001 registration. No other contract sterilization company can be as
positively objective as Isomedix when evaluating a customer's sterilization
needs.
We continue to be the leader of the contract sterilization industry and
there is an on-going strong demand for our services.
The outlook for contract sterilization remains bright as the United States
continues to be the leading supplier to a healthy global market for sterile
medical devices.
It is expected that pricing pressures will continue. However, we anticipate
that we will emerge stronger from it as a result of leveraging our considerable
financial strength combined with providing much needed uncompromising high
technology leadership and total quality customer service in contract
sterilization as well as services to other industries. We are incorporating
other value added services to secure our customer base as well as to attract new
businesses.
We believe there is an on-going recognition that due to the inherent
economies of scale associated with high volume throughput in contract
sterilization facilities, more healthcare companies, under cost containment
programs, will continue to shift to contract sterilization services. We now have
an ISO 9001 registered EtO Test Center in Spartanburg, South Carolina, which has
unique features and technical expertise to provide a full range of technical
services to our customers including expanded aeration capacity, parametric
release program in process, intrinsically safe in-chamber/product relative
humidity monitoring system, and distribution/logistical support.
Also, through our ISO 9001 registered one-of-a-kind Gamma Test Center in
Morton Grove, Illinois, we provide invaluable services including gamma
conversion programs, materials compatibility testing, dose setting and dose
audits.
These centralized test centers assist in expanding our customer base and
maintaining complementary and satisfactory relationships with our customers.
Our acquisition of a gamma facility in Puerto Rico contributes to not only
securing our customer base in both the United States and Puerto Rico, but also
opens the door to a broader Caribbean market.
As the public becomes more sophisticated in being better informed about the
need for cleanliness in our everyday environment, there is a growing public
awareness of the need for more sanitization of many of our consumer products.
Hence, there is an increasing demand from more microbial reduction,
disinfestation and sanitization services.
Isomedix now has a network of 11 gamma facilities, 5 ethylene oxide
facilities (4 of which are combined gamma/EtO) and 1 electron beam facility in
the United States, Canada and Puerto Rico.
Additionally, we are expanding our range of sterilization modalities with
the installation of an advanced technology electron beam facility in Illinois.
This will broaden the scope of service that we can offer to the medical and
other industries which we believe will contribute to overall business growth.
Our Company continues to irradiate test market quantities of exotic fruits
from Hawaii as part of establishing the feasibility of using radiation
technology as a much needed post-harvest treatment for the elimination of fruit
flies. This will enable Hawaii to export larger quantities of exotic fruits to
regions of the United States and other countries. Consumer test trials conducted
to date have been successful.
Adhering to our dynamic approach to providing total quality customer
service, we will continue to consider further expansion of our network for both
radiation and ethylene oxide.
At Isomedix, we strive at all times to stay one-step-ahead in meeting
customers' contract sterilization, microbial reduction and other radiation
application needs.
As always, we wish to extend our gratitude to all our employees, customers
and stockholders for their on-going support and loyalty.
Sincerely,
/s/ John Masefield
John Masefield
Chairman, President and
Chief Executive Officer
3
<PAGE> 5
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION
The following discussion analyzes major factors and trends regarding the
financial condition of the Company as of December 31, 1996 and its results of
operations for each of the three fiscal years ended December 31, 1996. It should
be read in conjunction with the Consolidated Financial Statements and Notes
appearing in this Annual Report.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1996 COMPARED TO 1995
Sales increased approximately 7.4% to $45,233,183 in 1996 from $42,122,318 in
1995, due to higher volumes of products processed for new and existing
customers. This increase was partially offset by increased competitive factors
including pricing pressures which are expected to continue in 1997. These
pricing pressures are resulting in lower margin business for the Company, offset
in part by higher volumes.
Gross profit decreased to 51.0% of sales in 1996 from 52.3% in 1995. This
decrease is attributable to increased competitive factors as described above.
Selling, general and administrative expenses, as a percentage of sales,
were 27.2% in 1996 compared to 24.8% in 1995. This increase was primarily due to
increased payroll and payroll related costs resulting from additions to the
corporate management staff and the disposal of certain fixed assets.
Operating income decreased 7.3% to $10,745,756 in 1996 from $11,592,903
in 1995 and, as a percentage of sales, decreased to 23.8% in 1996 compared to
27.5% in 1995. This decrease resulted from the reasons described above.
Investment income decreased to $895,837 in 1996 from $917,871 in 1995,
primarily as a result of a decrease in invested capital compared to a year ago,
due to purchases of Company common stock, radioisotope and property, plant and
equipment.
Interest expense of $456,002 in 1996 remained consistent with interest
expense of $426,369 in 1995.
Income from continuing operations decreased to $6,711,355 in 1996 from
$7,250,643 in 1995. This decrease was attributable to the reasons described
above. As a percentage of sales, income from continuing operations was 14.8% in
1996 compared to 17.2% in 1995.
During December 1996, the Company adopted a plan of disposal via orderly
liquidation of its wholly-owned subsidiary, Skyland Scientific Services Inc.
("Skyland"), effective December 31, 1996. The results of Skyland and the
associated loss on disposal have been accounted for as a discontinued operation.
Discontinued operations incurred a loss of $702,489 in 1996 compared to
income of $48,862 in 1995. Included in the loss was a charge in the second
quarter of 1996 related to the relocation of the headquarters of Skyland to the
vicinity of the Company's corporate office, the establishment of a West Coast
regional center of operations and the hiring of contract labor to support the
sales effort during the relocation. In addition, the Company incurred a fourth
quarter after-tax charge of approximately $383,000 primarily relating to a state
tax assessment.
The loss on the disposal of Skyland is $1,691,206. The items included in
the loss on disposal include the write-off of certain fixed assets, unamortized
goodwill and estimated unrecoverable costs through the disposal date.
Net income decreased to $4,317,660 in 1996 from $7,299,505 in 1995 as a
result of the reasons described above.
4
<PAGE> 6
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
1995 COMPARED TO 1994
Sales decreased approximately 2.2% to $42,122,138 in 1995 from $43,064,832 in
1994, due to increased competitive factors, including pricing pressures. The
volume of products processed (measured in cubic feet sterilized) increased at a
modest rate of a little over 2% in 1995 compared to 1994.
Gross profit decreased to 52.3% of sales in 1995 compared to 55.1% in
1994. This decrease is primarily attributable to the decrease in sales as
described above.
Selling, general and administrative expenses increased 5.2% to
$10,454,749 in 1995 from $9,937,626 and, as a percentage of sales, to 24.8% in
1995 compared to 23.1% in 1994. This increase was primarily due to increased
payroll and payroll related costs resulting from additions to the corporate
management staff.
Operating income decreased 16.0% to $11,592,903 in 1995 from $13,804,724
in 1994, and, as a percentage of sales, to 27.5% in 1995 compared to 32.1% in
1994. These decreases resulted from the factors described above.
Investment income increased to $917,871 in 1995 from $704,371 in 1994,
primarily as a result of additional invested funds in 1995 provided by operating
activities.
Interest expense decreased to $426,369 in 1995 from $488,753 in 1994 due
to payments of current maturities on long-term debt, partially offset by higher
interest rates.
Income from continuing operations decreased to $7,250,643 from $8,412,205
in 1994. This decrease was attributable to the reasons described above. As a
percentage of sales, income from continuing operations was 17.2% in 1995
compared to 19.5% in 1994.
Income from discontinued operations decreased to $48,862 in 1995 from
$404,555 in 1994, due to a decrease in sales of validation services to
$3,163,611 in 1995 from $4,176,420 in 1994. The decrease in sales was partially
offset by cost containment measures implemented in the third-quarter of 1995.
Net income decreased to $7,299,505 in 1995 from $8,816,760 in 1994, due
to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
During 1996 the Company experienced a slight decline in its liquidity
principally attributable to the capital expenditures for the purchase of
radioisotope and equipment for the Company's existing sterilization facilities,
the construction of a new sterilization facility in Libertyville, Illinois, and
the purchase of Company common stock. This decrease was partially offset by cash
provided by operating activities, derived from net income for the period as
adjusted for non-cash expense items such as depreciation and amortization.
During 1995 the Company's liquidity increased, which 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. The increase in cash from operating activities
was partially offset by cash used to fund investing and financing activities
primarily relating to the purchase of an ethylene oxide sterilization facility
in Temecula, California, capital expenditures for the purchase of radioisotope
and equipment for the Company's existing sterilization facilities, the
construction of a new sterilization facility in Libertyville, Illinois and for
purchases of Company common stock.
The Company currently utilizes excess cash flows from operations to fund
capital expenditures and facility expansion. In prior years, 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 initial purchase of radioisotope) some of its sterilization
facilities. 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.
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 facilities.
5
<PAGE> 7
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Company may also 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. The Company's capital expenditures for 1997 are
anticipated to be approximately $17 to $19 million, including the constructing
and equipping of the Company's new sterilization facility in Libertyville,
Illinois, which is expected to become operational in the second half of 1997 and
the purchase of a gamma radiation facility in Puerto Rico. Additionally, the
Company's Board of Directors have authorized the repurchase of up to 750,000
shares of its common stock. As of March 19, 1997, 412,600 shares have been
purchased, for a total of $5,765,723, pursuant to this authorization.
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 or other materials will
be significant to its operations.
NEW ACCOUNTING PRONOUNCEMENT
- --------------------------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
is effective for financial statements for annual periods ending after December
15, 1997. SFAS 128 establishes standards for the computation, presentation and
disclosure requirements for earnings per share. Management is currently
evaluating the impact of SFAS 128 on the financial statements.
6
<PAGE> 8
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 22,097,466 $ 4,860,088
Held-to-maturity securities 17,003,329
Accounts receivable, less allowance for doubtful accounts of $390,000 and
$350,000 at December 31, 1996 and 1995, respectively 6,360,174 8,048,560
Assets of discontinued operations 2,476,416
Prepaid expenses and other current assets 553,538 830,629
- -------------------------------------------------------------------------------- ------------ ------------
Total current assets 31,487,594 30,742,606
- -------------------------------------------------------------------------------- ------------ ------------
Property, plant and equipment, at cost 72,125,613 66,751,900
Less, Accumulated depreciation and amortization 18,730,202 17,855,870
- -------------------------------------------------------------------------------- ------------ ------------
53,395,411 48,896,030
- -------------------------------------------------------------------------------- ------------ ------------
Radioisotope, at cost 70,712,938 66,096,338
Less, Accumulated depreciation 41,099,527 36,624,237
- -------------------------------------------------------------------------------- ------------ ------------
29,613,411 29,472,101
- -------------------------------------------------------------------------------- ------------ ------------
Excess of costs over net assets acquired 725,906
Other assets 1,123,916 2,186,868
- -------------------------------------------------------------------------------- ------------ ------------
Total assets $115,620,332 $112,023,511
- -------------------------------------------------------------------------------- ------------ ------------
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $ 600,000 $ 500,000
Accounts payable and accrued expenses 1,961,282 1,631,453
Liabilities of discontinued operations 1,295,251
Contract deposits 119,781
Income taxes payable 405,704 545,888
- -------------------------------------------------------------------------------- ------------ ------------
Total current liabilities 4,262,237 2,797,122
- -------------------------------------------------------------------------------- ------------ ------------
Long-term debt 8,000,000 8,600,000
- -------------------------------------------------------------------------------- ------------ ------------
Deferred income taxes 8,997,668 8,453,497
- -------------------------------------------------------------------------------- ------------ ------------
Commitments and contingencies
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
issued and outstanding -- none
Common stock, $.01 par value; authorized 15,000,000 shares;
Issued:
December 31, 1996 - 7,169,868 shares
December 31, 1995 - 7,169,868 shares
Outstanding:
December 31, 1996 - 6,837,993 shares
December 31, 1995 - 6,984,528 shares 71,699 71,699
Additional paid-in capital 37,667,729 37,719,155
Retained earnings 61,485,309 57,167,649
- -------------------------------------------------------------------------------- ------------ ------------
99,224,737 94,958,503
Less, common stock held in the treasury, at cost,
December 31, 1996 - 331,875 shares
December 31, 1995 - 185,340 shares (4,864,310) (2,785,611)
- -------------------------------------------------------------------------------- ------------ ------------
Total stockholders' equity 94,360,427 92,172,892
- -------------------------------------------------------------------------------- ------------ ------------
Total liabilities and stockholders' equity $115,620,332 $112,023,511
- -------------------------------------------------------------------------------- ------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 9
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $45,233,183 $42,122,318 $43,064,832
Cost of sales 22,180,257 20,074,666 19,322,482
- --------------------------------------------------------- ----------- ----------- -----------
Gross profit 23,052,926 22,047,652 23,742,350
Selling, general and administrative expense 12,307,170 10,454,749 9,937,626
- --------------------------------------------------------- ----------- ----------- -----------
Operating income 10,745,756 11,592,903 13,804,724
Interest expense (456,002) (426,369) (488,753)
Investment income 895,837 917,871 704,371
- --------------------------------------------------------- ----------- ----------- -----------
Pre-tax income from continuing operations 11,185,591 12,084,405 14,020,342
Provision for income taxes 4,474,236 4,833,762 5,608,137
- --------------------------------------------------------- ----------- ----------- -----------
Income from continuing operations $ 6,711,355 $ 7,250,643 $ 8,412,205
- --------------------------------------------------------- ----------- ----------- -----------
Discontinued operations:
(Loss) income from discontinued operations of
Skyland Scientific Services Inc. (less applicable
income taxes of $361,889, $32,574 and
$269,703 in 1996, 1995 and 1994, respectively) (702,489) 48,862 404,555
Loss on disposal of Skyland Scientific Services Inc.
(less applicable income taxes of $511,494) (1,691,206)
- --------------------------------------------------------- ----------- ----------- -----------
Net income $ 4,317,660 $ 7,299,505 $ 8,816,760
- --------------------------------------------------------- ----------- ----------- -----------
Earnings per share
Income from continuing operations $ .94 $ 1.00 $ 1.14
Discontinued operations:
(Loss) income from discontinued operations of
Skyland Scientific Services Inc. (.10) .01 .06
Loss on disposal of Skyland Scientific Services Inc. (.24)
- --------------------------------------------------------- ----------- ----------- -----------
Net income $ .60 $ 1.01 $ 1.20
- --------------------------------------------------------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
8
<PAGE> 10
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------ --------------
ADDITIONAL
STOCKHOLDERS' NUMBER PAID-IN RETAINED NUMBER
EQUITY OF SHARES AMOUNT CAPITAL EARNINGS OF SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $78,171,592 7,139,574 $71,396 $37,371,084 $41,051,384 (21,100) $ (322,272)
Acquisition of treasury stock (1,705,629) (110,000) (1,705,629)
Exercise of stock options 287,837 7,911 79 17,983 17,667 269,775
Tax benefit from exercise
of stock options 52,594 52,594
Sale of common stock
under employee stock
purchase plan 116,393 5,107 51 63,845 3,433 52,497
Net income - 1994 8,816,760 8,816,760
- ----------------------------- ----------- --------- ------- ----------- ----------- --------- -----------
Balance, December 31, 1994 85,739,547 7,152,592 71,526 37,505,506 49,868,144 (110,000) (1,705,629)
Acquisition of treasury stock (1,275,945) (89,800) (1,275,945)
Exercise of stock options 267,395 12,900 129 131,604 9,205 135,662
Tax benefit from exercise
of stock options 23,505 23,505
Sale of common stock
under employee stock
purchase plan 118,885 4,376 44 58,540 5,255 60,301
Net income - 1995 7,299,505 7,299,505
- ----------------------------- ----------- --------- ------- ----------- ----------- --------- -----------
Balance, December 31, 1995 92,172,892 7,169,868 71,699 37,719,155 57,167,649 (185,340) (2,785,611)
Acquisition of treasury stock (2,636,233) (185,200) (2,636,233)
Exercise of stock options 344,390 (80,925) 28,528 425,315
Tax benefit from exercise
of stock options 17,710 17,710
Sale of common stock
under employee stock
purchase plan 144,008 11,789 10,137 132,219
Net income - 1996 4,317,660 4,317,660
- ----------------------------- ----------- --------- ------- ----------- ----------- --------- -----------
Balance, December 31, 1996 $94,360,427 7,169,868 $71,699 $37,667,729 $61,485,309 (331,875) $(4,864,310)
- ----------------------------- ----------- --------- ------- ----------- ----------- --------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
9
<PAGE> 11
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,317,660 $ 7,299,505 $ 8,816,760
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,218,420 6,930,462 7,194,848
Amortization 356,804 706,213 696,368
Provision for doubtful accounts 650,198 100,000
Loss on disposal of discontinued operations 2,202,700
Loss (gain) on sale or disposal of assets 205,311 (5,197) (86)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (817,147) 445,048 (186,364)
Decrease in prepaid expenses and other assets 22,298 447,132 239,967
Increase (decrease) in accounts payable and
accrued expenses 707,467 (1,247,738) 374,682
Increase (decrease) in contract deposits 72,209 (420,278)
(Decrease) increase in income taxes payable (66,020) 280,965 (230,759)
(Decrease) increase in deferred income taxes (193,992) 820,045 1,261,377
- --------------------------------------------------------- ----------- ------------ ------------
Net cash provided by operating activities 14,603,699 15,748,644 17,846,515
- --------------------------------------------------------- ----------- ------------ ------------
Cash flows from investing activities:
Purchases of held-to-maturity securities (17,140,946) (14,918,177)
Proceeds from maturity of held-to-maturity securities 17,003,329 17,556,138 8,706,000
Proceeds from sale of assets 5,197 87
Additions to property, plant and equipment (7,172,595) (11,557,947) (1,792,574)
Additions to radioisotope (4,616,600) (3,087,796) (3,810,419)
Equipment deposits (740,417) (123,053)
Payments from lease receivable 49,670 70,818
Other (318,491)
- --------------------------------------------------------- ----------- ------------ ------------
Net cash provided by (used in) investing activities 5,263,804 (14,965,771) (12,185,809)
- --------------------------------------------------------- ----------- ------------ ------------
Cash flows from financing activities:
Purchases of treasury stock (2,636,233) (1,275,945) (1,705,629)
Payments of long-term debt (500,000) (925,000) (1,400,000)
Proceeds of stock options exercised and employee
stock purchases 506,108 409,785 456,824
Other (93,098)
- --------------------------------------------------------- ----------- ------------ ------------
Net cash used in financing activities (2,630,125) (1,884,258) (2,648,805)
- --------------------------------------------------------- ----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 17,237,378 (1,101,385) 3,011,901
Cash and cash equivalents at beginning of year 4,860,088 5,961,473 2,949,572
- --------------------------------------------------------- ----------- ------------ ------------
Cash and cash equivalents at end of year $22,097,466 $ 4,860,088 $ 5,961,473
- --------------------------------------------------------- ----------- ------------ ------------
Supplemental cash flow information:
- --------------------------------------------------------- ----------- ------------ ------------
Cash paid for interest (net of amounts capitalized) $ 446,741 $ 492,273 $ 490,378
- --------------------------------------------------------- ----------- ------------ ------------
Cash paid for income taxes $ 4,076,450 $ 3,322,094 $ 4,119,998
- --------------------------------------------------------- ----------- ------------ ------------
Supplemental non cash investing activities:
- --------------------------------------------------------- ----------- ------------ ------------
Additions to radioisotope in satisfaction of
lease receivable $ -- $ 217,692 $ 694,639
- --------------------------------------------------------- ----------- ------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
10
<PAGE> 12
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts
of Isomedix Inc. and Subsidiaries (the "Company"), all of which are wholly
owned. All significant intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION:
The Company is engaged principally in the business of providing contract
sterilization services to manufacturers of pre-packaged healthcare products and
certain consumer products. Sterilization revenue is recognized at the time the
related services are performed.
Through its Skyland subsidiary, the Company provided contract consulting,
calibration and validation services to assist manufacturers of healthcare
products in complying with Good Manufacturing Practices established by industry
and government. The services offered included equipment calibration, validation
of facility utilities and processing equipment, and the validation of computer
control systems. Revenue and the related costs of the contract are recognized
using the percentage of completion method measured by costs incurred. Customers
are generally billed monthly on work performed against each project, plus
reimbursable direct costs. During December 1996, the Company adopted a plan of
disposal via orderly liquidation of Skyland, effective December 31, 1996.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
DEBT AND EQUITY SECURITIES:
The Company adopted, effective January 1, 1994, Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires a more detailed disclosure of
debt and equity securities held for investment, the methods to be used in
determining fair value and when to record unrealized holding gains and losses in
earnings or in a separate component of stockholders' equity. There was no effect
on income or cash flows as a result of adopting SFAS 115. It is the Company's
policy to invest primarily in United States government securities. It is the
Company's intent and ability to hold investments to maturity.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are valued at cost. Expenditures for
maintenance and repairs, which do not materially prolong the normal useful life
of an asset, are charged to operations as incurred. Additions and betterments
which substantially extend the useful life of the properties are capitalized.
Upon sale or other disposition of assets, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income.
Depreciation of property, plant and equipment is provided under the
straight-line method over the estimated useful lives of the related assets
except for leasehold improvements which are amortized over the shorter of their
estimated useful lives or lease terms.
RADIOISOTOPE:
Depreciation of radioisotope is determined by use of the annual decay
factor inherent in the material, which is similar to the sum-of-the-years-digits
method, over its estimated useful life of twenty years.
DEFERRED FINANCING COSTS:
Direct costs associated with obtaining long-term financing have been
capitalized and are being amortized over the term of the respective loans as a
component of selling, general and administrative expenses. Included in other
assets are deferred financing costs of $300,357 and $326,313 (net of accumulated
amortization of $570,516 and $544,560) at December 31, 1996 and 1995,
respectively.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial statements or tax
returns. The Company intends to reinvest its undistributed Canadian earnings of
approximately $5,800,000 and, therefore, there is no provision in the financial
statements for unrepatriated earnings.
RECLASSIFICATION:
The Company has reclassified certain prior year amounts to conform with
the 1996 presentation.
11
<PAGE> 13
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
2. DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
During December 1996, the Company adopted a plan of disposal via orderly
liquidation of its Skyland subsidiary, effective December 31, 1996. Skyland
provided contract consulting, calibration and validation services to assist
manufacturers of healthcare products in complying with Good Manufacturing
Practices established by industry and government. The results of Skyland and the
associated loss on disposal have been accounted for as a discontinued operation.
Accordingly, the operations of Skyland have been segregated in the accompanying
income statement. Sales, cost of sales, selling, general and administrative
expenses and income taxes for fiscal years 1995 and 1994 have been reclassified
for amounts associated with Skyland. The disposal of Skyland is expected to be
completed by the end of the second quarter of 1997. Sales, related income/losses
and tax benefits associated with the disposal of Skyland, excluding the loss on
disposal for the last three fiscal years were as follows:
<TABLE>
<CAPTION>
(in thousands of dollars) 1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Sales $ 3,689 $3,164 $4,176
------- ------ ------
(Loss) income from operations
before income tax (1,064) 82 675
Income tax benefit (expense) 362 (33) (270)
------- ------ ------
(Loss) income from operations $ (702) $ 49 $ 405
------- ------ ------
</TABLE>
The assets and liabilities of Skyland have been classified in the
consolidated balance sheet as assets of discontinued operations and liabilities
of discontinued operations, and consist primarily of accounts receivable,
deferred tax assets and accrued expenses, which includes the provision for the
estimated unrecoverable costs through the disposal date, at December 31, 1996.
3. DEBT AND EQUITY SECURITIES
- --------------------------------------------------------------------------------
Held-to-maturity securities consist of debt instruments from United
States government, state and municipal issuers. These securities are carried at
original cost, which approximates amortized cost. Any realized gains or losses
would be recognized on the specific identification method.
At December 31, 1996, debt securities had no carrying or market value
compared to a carrying value of $17,003,329 and a market value of $17,082,809 at
December 31, 1995. There were $66,830 of gross unrealized losses at December 31,
1995.
Investments in debt securities classified as held-to-maturity at December
31, 1995 had various maturity dates which did not exceed one year.
4. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------------------------------------------------
Major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Estimated
1996 1995 Useful Life
- --------------------------------------------------------------
<S> <C> <C> <C>
Land $ 6,024,235 $ 6,015,410
Land
improvements 1,070,936 923,689 10 years
Buildings 26,502,152 26,500,736 30-40 years
Building
improvements 1,439,447 1,336,524 7 years
Machinery and
equipment 30,566,958 27,421,095 3-10 years
Furniture and
fixtures 1,708,503 1,977,378 5-10 years
Leasehold
improvements 217,156 238,668 Life of lease
Construction
in-progress 4,596,226 2,338,400
----------- -----------
$72,125,613 $66,751,900
=========== ===========
</TABLE>
On December 29, 1995, the Company purchased an ethylene oxide
sterilization facility located in Temecula, California, from an unrelated party,
for $4,300,000 in cash.
5. LONG-LIVED ASSETS
- --------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS
121"), requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset in question may not be recoverable. SFAS 121 was adopted in 1996 and did
not have a material effect on the Company's financial position, results of
operations or cash flows.
12
<PAGE> 14
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
6. LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consists of obligations payable relating to industrial
development revenue bonds, collateralized by substantially all of the property,
plant, equipment and radioisotope purchased with the proceeds from such
industrial development revenue bond transactions, as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Payable in annual installments
of $400,000 from October 1992
through October 1996 and
$500,000 thereafter through
October 2008. $6,000,000 $6,400,000
Payable in annual installments
of $100,000 from March 1993
through March 1997, $200,000
through March 2008, and
a payment of $300,000
in March 2009 2,600,000 2,700,000
---------- ----------
8,600,000 9,100,000
Less, Current portion 600,000 500,000
---------- ----------
$8,000,000 $8,600,000
---------- ----------
</TABLE>
The bonds bear interest at a variable rate based on the bank/marketing
agent's Demand Note index. The interest rate was 4.5% and 5.5% at December 31,
1996 and 1995, respectively. The bondholders can require the Company to redeem
the bonds at any time. If this occurs, the bank/marketing agent will attempt to
sell the bonds to another investor. To enhance the marketability of the bonds,
the bank/marketing agent has issued a letter of credit, to support payment of
the bonds on the Company's behalf. If such bonds are not remarketed, the bank
will pay the bonds under the letter of credit and will not require the Company
to reimburse the bank for at least one year.
Based on borrowing rates available to the Company for bank loans with
similar terms and maturities, the fair value of long-term debt approximated its
carrying value.
The Company has $10,000,000 in unused lines of credit, of which all was
available at December 31, 1996 and 1995.
The aforementioned bond agreements contain, among other requirements,
various covenants relating to minimum capitalization, consolidated net worth and
working capital. The maintenance of such covenants indirectly limits the amount
that may be distributed as cash dividends or used for treasury stock purchases.
The amount available for such payments at December 31, 1996 is approximately
$24,500,000. There are also certain limitations on additional indebtedness and
capital expenditures.
Aggregate maturities of long-term debt for each of the five years ending
after December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 600,000
1998 700,000
1999 700,000
2000 700,000
2001 700,000
</TABLE>
7. INCOME TAXES
- --------------------------------------------------------------------------------
The components of the provision for income taxes relating to continuing
operations are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $2,732,588 $2,925,803 $3,170,823
State 563,598 466,230 836,628
Canada 652,894 628,025 404,445
---------- ---------- ----------
$3,949,080 $4,020,058 $4,411,896
---------- ---------- ----------
Deferred:
Federal $ 401,626 409,168 1,190,371
State 136,254 411,567 85,649
Canada (12,724) (7,031) (79,779)
---------- ---------- ----------
525,156 813,704 1,196,241
---------- ---------- ----------
$4,474,236 $4,833,762 $5,608,137
---------- ---------- ----------
</TABLE>
A summary of income before provision for income taxes relating to
continuing operations from domestic and nondomestic sources is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------
<S> <C> <C> <C>
United States $ 9,885,047 $10,861,604 $13,140,929
Canada 1,300,544 1,222,801 879,413
----------- ----------- -----------
$11,185,591 $12,084,405 $14,020,342
----------- ----------- -----------
</TABLE>
Deferred income taxes were comprised of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Accelerated depreciation
and amortization $9,229,876 $8,549,863
Other 240,362 220,410
- ---------------------------- ---------- ----------
Gross deferred liabilities $9,470,238 $8,770,273
- ---------------------------- ---------- ----------
Bad debts $ 301,477
Capitalized interest 99,586 $ 101,751
Other 71,507 215,025
- ---------------------------- ---------- ----------
Gross deferred assets $ 472,570 $ 316,776
- ---------------------------- ---------- ----------
Net deferred tax liabilities $8,997,668 $8,453,497
- ---------------------------- ---------- ----------
</TABLE>
13
<PAGE> 15
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
The Company did not have a valuation allowance as of December 31, 1996
and 1995.
The reasons for the difference between the provision for income taxes
using the United States federal statutory income tax rate and the tax provision
reported by the Company are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------
<S> <C> <C> <C>
Provisions computed
at United States
Federal statutory
income tax rate 34% 34% 34%
State and local
income taxes, net
of federal benefit 5% 5% 4%
Higher net effective
tax rate in Canada 1% 1%
Higher enacted rate on
net deferred liabilities 1%
Other 1%
-- -- --
40% 40% 40%
-- -- --
</TABLE>
8. LEASE COMMITMENTS
- --------------------------------------------------------------------------------
The Company leases certain facilities and equipment under noncancelable
operating leases that expire over the next seven years. Minimum future rental
commitments under these leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $279,807
1998 93,875
1999 96,412
2000 99,072
2001 62,313
Thereafter 39,866
--------
$671,345
--------
</TABLE>
The Company incurred total lease expense of approximately $812,898 in
1996, $899,516 in 1995 and $961,240 in 1994.
The 1997 period includes the termination of Skyland's leases.
9. CONCENTRATION OF CREDIT RISK
- --------------------------------------------------------------------------------
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash, cash equivalents,
held-to-maturity securities and trade receivables. The Company primarily
maintained all of its held-to-maturity securities and United States government
securities, which are federally insured, with one investment banking firm. At
times, cash accounts may exceed federally insured limits. The Company routinely
assesses the financial strength of its customers.
10. RISKS AND UNCERTAINTIES
- --------------------------------------------------------------------------------
The Company primarily operates as a provider of contract sterilization
services to manufacturers of pre-packaged healthcare products and certain
customer products. The Company is not dependent on any single customer or
geographic area or supplier of labor or services.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
significant estimates include allowance for bad debt, income taxes,
unrecoverable costs through the disposal date of discontinued operations,
depreciation and amortization lives and the determination of discount and other
rate assumptions for employee benefits.
11. PREFERRED STOCK PURCHASE RIGHTS
- --------------------------------------------------------------------------------
On June 10, 1988, the Board of Directors of the Company declared a
dividend of one preferred stock purchase right for each outstanding share of
common stock. This action was intended to protect stockholders' value in the
Company in the event of a hostile takeover attempt. Each right entitles the
holder to purchase from the Company one one-hundredth of a share of Series A
Preferred Stock at an exercise price of $20 per one one-hundredth of a preferred
share.
The rights are not exercisable or transferable apart from the common
stock until the earlier to occur of (1) ten days following a public announcement
that a person or group of affiliated or associated persons have acquired
beneficial ownership of 20% or more of the outstanding common stock of the
Company or (2) ten business days following the commencement of, or announcement
of, an intention to make a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of 20% or
more of such outstanding common stock. Furthermore, if the Company enters into a
consolidation, merger, combination or other transaction, where shares of common
stock are exchanged for cash, property, stock or securities of any other entity,
each
14
<PAGE> 16
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
right would entitle the holder upon exercise to receive, in lieu of Series
A preferred shares, that number of shares of common stock of the acquiring
company having a market value of two times the exercise price of the right. The
rights contain antidilutive provisions, are redeemable at the Company's option,
for $.01 per right, and expire on June 10, 1998.
As a result of the rights distribution, the Board of Directors authorized
the issuance of 55,000 shares of a new series of preferred stock designated as
Series A Preferred Stock, $1.00 par value. Stockholders of the Series A
Preferred Stock will be entitled to a cumulative quarterly dividend of the
greater of $1.00 per share or 100 times the per share dividend declared on
common stock. The shares have a liquidation preference equal to the greater of
$100.00 per share or 100 times the aggregate amount per share distributed to the
holders of common stock. Each share will have 100 votes and will vote together
with the common shares.
12. EARNINGS PER COMMON SHARE
- --------------------------------------------------------------------------------
Earnings per share have been computed based upon the weighted average
number of shares of common stock outstanding during the year. The number of
shares used in computing earnings per share was 7,147,198, 7,217,473 and
7,361,716 for 1996, 1995 and 1994, respectively. Included in the calculation, if
dilutive, is the incremental number of shares issuable upon the exercise of
stock options and warrants, assuming the proceeds from such exercise were used
to purchase outstanding common stock at the average market price during the
year. Such incremental shares were not significant for any period.
13. STOCK OPTIONS
- --------------------------------------------------------------------------------
The Company has granted stock options to key employees at prevailing
market prices on the date of grant pursuant to the "Isomedix Inc. 1982 Stock
Option Plan". In February 1995, the Board of Directors approved an amendment to
change the option exercise price of certain options in excess of $12.75 per
share to $12.75 per share. Pursuant to this amendment, options to purchase
136,000 shares of common stock were amended. At December 31, 1996, options to
purchase 75,300 shares were exercisable (1995-79,300). Stock option activity
under the plan for the three years ended December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
WEIGHTED
NUMBER OF AVERAGE OPTION PRICE
OPTIONS PRICE RANGE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding,
December 31, 1993 239,283 $12.40 $ 5.00-$14.00
Exercised (23,178) $10.97 $ 5.00-$14.00
Terminated and cancelled (2,800) $14.00 $11.75-$14.00
- ------------------------ ------- ------ -------------
Balance outstanding
December 31, 1994 213,305 $12.54 $ 5.00-$14.00
Exercised (10,405) $10.74 $ 5.00-$12.75
Terminated and cancelled (6,800) $11.73 $ 9.13-$12.75
- ------------------------ ------- ------ -------------
Balance outstanding
December 31, 1995 196,100 $11.77 $ 5.00-$12.75
Exercised (15,700) $11.51 $ 9.63-$12.75
Terminated and cancelled (2,000) $12.75 $12.75
- ------------------------ ------- ------ -------------
Balance outstanding
December 31, 1996 178,400 $11.78 $ 5.00-$12.75
--------------------- ------- ------ -------------
</TABLE>
The Company grants stock options to key employees and directors at
prevailing market prices on the date of grant pursuant to the "Isomedix Inc.
1992 Supplemental Stock Option Plan." In February 1995, the Board of Directors
approved an amendment to change the option exercise price of certain options in
excess of $12.75 per share to $12.75 per share. Pursuant to this amendment,
options to purchase 120,000 shares of common stock were amended. At December 31,
1996, options to purchase 85,000 shares were exercisable (1995-65,000) and
180,000 shares were reserved for the granting of future options under the plan
(1995-180,000). Stock option activity under the plan for the three years ended
December 31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
WEIGHTED
NUMBER OF AVERAGE OPTION PRICE
OPTIONS PRICE RANGE
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding
December 31, 1993 120,000 $16.71 $16.25-$17.25
----------------- ------- ------ -------------
Balance outstanding
December 31, 1994 120,000 $16.71 $16.25-$17.25
Granted 100,000 $13.75 $13.75
- -------------------- ------- ------ -------------
Balance outstanding
December 31, 1995 220,000 $13.20 $12.75-$13.75
----------------- ------- ------ -------------
Balance outstanding
December 31, 1996 220,000 $13.20 $12.75-$13.75
----------------- ------- ------ -------------
</TABLE>
The Company grants stock options to key employees and directors at
prevailing market prices on the date of grant pursuant to the "Isomedix Inc.
1992 Stock Option Plan." In February 1995, the Board of
15
<PAGE> 17
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Directors approved an amendment to change the option exercise price of certain
options in excess of $12.75 per share to $12.75 per share. Pursuant to this
amendment, options to purchase 456,900 shares of common stock were amended. On
December 9, 1994, the Board of Directors approved an amendment to change the
option exercise price for certain options in excess of $17.25 per share to
$14.75 per share. Pursuant to this amendment, options to purchase 7,000 shares
of common stock were amended. At December 31, 1996 options to purchase 377,500
shares were exercisable (1995-593,100) and 28,700 shares were reserved for the
granting of future options under the plan (1995-6,900). Stock option activity
under the plan for the three years ended December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
WEIGHTED
NUMBER OF AVERAGE OPTION PRICE
OPTIONS PRICE RANGE
- -----------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding
December 31, 1993 419,500 $14.48 $14.00-$17.25
Granted 95,000 $15.29 $14.75-$19.75
Exercised (2,400) $14.00 $14.00
Terminated and cancelled (33,200) $14.67 $14.00-$18.13
- ------------------------ ------- ------ -------------
Balance outstanding
December 31, 1994 478,900 $14.63 $14.00-$17.25
Granted 137,000 $14.15 $12.75-$14.75
Exercised (11,700) $12.75 $12.75
Terminated and cancelled (35,200) $12.80 $12.75-$14.50
- ------------------------ ------- ------ -------------
Balance outstanding
December 31, 1995 569,000 $13.08 $12.75-$14.75
Granted 23,500 $15.00 $14.63-$14.88
Exercised (12,400) $12.75 $12.75
Terminated and cancelled (45,300) $13.86 $12.75-$14.88
- ------------------------ ------- ------ -------------
Balance outstanding
December 31, 1996 534,800 $13.11 $12.75-$24.88
--------------------- ------- ------ -------------
</TABLE>
The Company grants stock options to key employees and directors at
prevailing market prices on the date of grant pursuant to the "Isomedix Inc.
1996 Long Term Incentive Plan," which was adopted on May 17, 1996. At December
31, 1996, no options to purchase shares were exercisable and 312,500 shares were
reserved for the granting of future options under the plan. Stock option
activity under the plan for the year ended December 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
WEIGHTED
NUMBER OF AVERAGE OPTION PRICE
OPTIONS PRICE RANGE
- --------------------------------------------------------------
<S> <C> <C> <C>
Granted 37,500 $13.55 $13.50-$13.88
- -------------------- ------ ------ -------------
Balance outstanding
December 31, 1996 37,500 $13.55 $13.50-$13.88
----------------- ------ ------ -------------
</TABLE>
The repricings of certain outstanding stock options in February 1995 and
December 1994 were taken since stock price declines during the repricing periods
required the repricings to give further incentive to key management. There was
no compensation expense recorded, because in all instances, the options were
repriced at the fair market value of the Company's stock on the date of
repricing.
The table below summarizes information about the 1982, 1992, and the 1992
Supplemental Stock Option Plans and the 1996 Long Term Incentive Plans at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE LIFE EXERCISE EXERCISE
PRICES NUMBER (IN YEARS) PRICE NUMBER PRICE
- ---------------------------------------------------------------------
1982 Stock Option Plan
<S> <C> <C> <C> <C> <C> <C>
$ 5.00 $ 8.25 700 1.25 $ 6.857 700 $ 6.857
$ 9.13 $10.00 51,000 3.15 $ 9.439 51,000 $ 9.439
$11.50 $12.75 126,700 5.34 $12.746 23,600 $12.729
- ---------------------------------------------------------------------
1992 Stock Option Plan
$12.75 $12.75 427,300 6.12 $12.750 360,100 $12.750
$14.00 $15.25 107,500 8.69 $14.540 17,400 $14.430
- ---------------------------------------------------------------------
1992 Supplemental Stock Option Plan
$12.75 $13.75 220,000 7.47 $13.204 85,000 $12.985
- ---------------------------------------------------------------------
1996 Long Term Incentive Plan
$13.50 $13.88 37,500 9.66 $13.550 None $ --
- ---------------------------------------------------------------------
</TABLE>
These plans provide that shares granted come from the Company's
authorized but unissued or reacquired common stock. The price of the options
granted pursuant to these plans will not be less than 100% of the fair market
value of the shares on the date of grant. The options generally vest over a five
year period and no option may be exercised within one year from the date of
grant or after ten years from the date of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
four stock option plans been determined based on the fair value at the grant
date for awards in 1996 and 1995 consistent with the provisions of SFAS 123, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
16
<PAGE> 18
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Net earnings--as reported $4,317,660 $7,299,505
Net earnings--pro forma $4,035,546 $6,351,095
-----------------------
Earnings per share--as reported $ .60 $ 1.01
Earnings per share--pro forma $ .57 $ .89
-----------------------
- -------------------------------------------------------------
</TABLE>
Pro forma amounts reflect options granted after 1994 and are not likely
to be representative of amounts in future years as additional options are
awarded and vested.
The impact on the 1995 period was primarily due to the effect of the
option repricing discussed above.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; expected volatility of 45%;
risk-free interest rate of 6.24% in 1996 and 6.91% in 1995; and expected lives
of 5 years.
14. WARRANTS
- --------------------------------------------------------------------------------
The Company has granted warrants to purchase shares of the Company's
common stock. The warrants expire ten years from the date of issuance. Warrant
activity for the three years ended December 31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
WEIGHTED
NUMBER OF AVERAGE WARRANT PRICE
WARRANTS PRICE RANGE
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance outstanding
December 31, 1993 143,500 $8.56 $5.00-$9.63
----------------- ------- ----- -----------
Balance outstanding
December 31, 1994 143,500 $8.56 $5.00-$9.63
----------------- ------- ----- -----------
Balance outstanding
December 31, 1995 143,500 $8.56 $5.00-$9.63
----------------- ------- ----- -----------
Balance outstanding
December 31, 1996 143,500 $8.56 $5.00-$9.63
----------------- ------- ----- -----------
</TABLE>
15. EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
PENSION PLAN:
The Company has a defined benefit pension plan which covers all domestic
employees (excluding employees of Skyland) who meet certain age and service
requirements. Benefits are based on years of service and compensation during the
last five years of employment. The Company's funding policy is to contribute
annually an amount representing the minimum amount required under applicable
laws and regulations. Such amounts are computed using an actuarial cost method
and assumptions that differ from those used for financial reporting. Plan assets
are principally invested in commingled bank trust funds.
The components of pension expense for 1996, 1995 and 1994 are summarized
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 294,996 $ 202,787 $206,718
Interest cost 168,679 145,015 125,650
Actual return
on plan assets (211,622) (370,619) 15,954
Net deferral
(amortization) 32,853 250,680 (94,371)
- ------------------- --------- --------- --------
Net pension expense $ 284,906 $ 227,863 $253,951
- ------------------- --------- --------- --------
</TABLE>
The following table sets forth the funded status of the plan at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $ 1,961,627 $ 1,807,749
Nonvested benefits 163,592 131,209
- ---------------------------------- ----------- -----------
Accumulated benefit obligation $ 2,125,219 $ 1,938,958
- ---------------------------------- ----------- -----------
Projected benefit obligation
for services rendered to date $(2,722,835) $(2,571,214)
Plan assets at fair value 3,018,770 2,504,165
- ---------------------------------- ----------- -----------
Funded status 295,935 (67,049)
Unrecognized transition asset (10,837) (11,363)
Unrecognized prior service cost 476,482 509,861
Unrecognized (gain) loss (73,328) 139,329
- ---------------------------------- ----------- -----------
Prepaid pension cost $ 688,252 $ 570,778
- ---------------------------------- ----------- -----------
</TABLE>
The expected long-term rate of return on plan assets was 8.25% for 1996
and 1995. The projected benefit obligation has been determined based upon a
discount rate of 7.25% for 1996 and 1995. In 1996 and 1995 the assumed rate of
compensation increases was 3%.
EMPLOYEE SAVINGS AND PROTECTION PLAN:
The Employee Savings and Protection Plan (the "Plan") is a defined
contribution plan covering all non-union domestic salaried and hourly employees
who have met the age and service requirements under the Plan. The Plan is a
401(k) plan which permits each participant to elect to defer a portion of his or
her compensation and contribute such amount to the Plan on a tax deferred basis.
The Plan also permits the Company to make annual cash contributions from its
revenues as determined by the Board of Directors. These contributions may be
allocated to participant's accounts either on a pro-rated basis based
17
<PAGE> 19
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
upon participant compensation or, in the alternative, as a matching contribution
based on the amounts that participants have contributed to the Plan as 401(k)
salary deferral contributions. The Plan expense was approximately $96,000 in
1996, $96,000 in 1995 and $90,000 in 1994.
EMPLOYEE STOCK PURCHASE PLAN:
Pursuant to the "1993 Employee Stock Purchase Plan", the Company has
reserved and made available common shares for purchase by eligible employees,
including directors and officers, through payroll deductions over successive
six-month offering periods. The purchase price of common stock under the plan is
85% of the lower of the last sale price per share (on the New York Stock
Exchange) on either of the first or last day of each six-month offering period.
In 1996, 5,448 and 4,689 shares were purchased at prices of $11.58 and $12.64,
respectively. In 1995, 4,376 and 5,255 shares were purchased at prices of $13.39
and $11.46, respectively. At December 31, 1996, 75,927 shares were available for
future purchases under the Plan.
16. GEOGRAPHIC DISTRIBUTION OF OPERATIONS
- --------------------------------------------------------------------------------
Information about the Company's operations in different geographic areas
is presented below. Intercompany transfers between geographic areas are not
significant.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
United States $ 42,627,484 $ 39,542,584 $ 40,746,112
Canada 2,605,699 2,579,734 2,318,720
- ------------------- ------------ ------------ ------------
Total $ 45,233,183 $ 42,122,318 $ 43,064,832
- ------------------- ------------ ------------ ------------
Operating income:
United States $ 9,572,469 $ 10,515,802 $ 12,766,746
Canada 1,173,287 1,077,101 1,037,978
- ------------------- ------------ ------------ ------------
Total $ 10,745,756 $ 11,592,903 $ 13,804,724
- ------------------- ------------ ------------ ------------
Identifiable assets:
United States $109,044,886 $107,779,353 $100,247,420
Canada 6,575,446 4,244,158 6,342,265
- ------------------- ------------ ------------ ------------
Total $115,620,332 $112,023,511 $106,589,685
- ------------------- ------------ ------------ ------------
</TABLE>
17. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
A member of the Company's Board of Directors is a partner in the law firm
which serves as the Company's General Counsel.
18. UNAUDITED QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
(amounts in thousands, except per share amounts)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales $10,793 $11,562 $11,033 $11,845
Gross Profit 5,230 6,035 5,717 6,071
Income from
continuing operations 1,498 1,897 1,947 1,369
Net income 1,484 1,775 1,825 (766)
Earnings per share:
Continuing
operations(1),(2) $ 0.21 $ 0.26 $ 0.27 $ 0.19
Net income(1),(3) $ 0.21 $ 0.25 $ 0.26 $ (0.11)
--------------------- ------- ------- ------- -------
1995
Sales $10,415 $10,714 $10,312 $10,681
Gross Profit 5,505 5,812 5,464 5,267
Income from
continuing operations 1,791 1,983 1,886 1,591
Net income 1,865 1,988 1,857 1,590
Earnings per share:
Continuing
operations(1) $ 0.25 $ 0.28 $ 0.26 $ 0.22
Net income(1) $ 0.26 $ 0.28 $ 0.26 $ 0.22
--------------------- ------- ------- ------- -------
</TABLE>
(1) Quarterly earnings per share do not sum to annual earnings per share due
to rounding.
(2) Included in the fourth quarter of 1996 are $420,000 of after-tax charges,
the largest item being the disposal of certain fixed assets.
(3) Included in the fourth quarter of 1996 are charges (net of income tax
benefits) of approximately $1,691,206 for the disposal of Skyland.
19. LITIGATION
- --------------------------------------------------------------------------------
The Company is from time to time involved in litigation arising out of
the ordinary cost of business. It is management's view that the ultimate
resolution of pending suits should not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
20. SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
STOCK REPURCHASE PROGRAM:
On January 10, 1997 the Company announced that its Board of Directors
authorized the repurchase of up to 750,000 shares of its common stock (over 10
percent of the outstanding shares). As of March 19, 1997, 412,600 shares have
been purchased, for a total of $5,765,723, pursuant to this authorization.
FACILITY ACQUISITION:
On March 19, 1997, the Company purchased an irradiation sterilization
facility, Cobalt-60 and related equipment in Vega Alta, Puerto Rico from an
unrelated party for $4,600,000 in cash.
18
<PAGE> 20
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ISOMEDIX INC.:
We have audited the accompanying consolidated balance sheets of ISOMEDIX
INC. and SUBSIDIARIES as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Isomedix Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
February 11, 1997, except for Note 20,
for which the date is March 19, 1997.
19
<PAGE> 21
ISOMEDIX INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CORPORATE INFORMATION:
DIRECTORS
- ------------------------------
John Masefield
Chairman of the Board
President and
Chief Executive Officer
Isomedix Inc.(2),(3)
David M. Lank
Partner
Dorchester Investment
Management
(Investment Counsel)(1),(2),(4)
Thomas M. Haythe, Esq.
Partner
Haythe & Curley
(Law Firm)(1),(2),(3)
H. Stuart Campbell
Vice President
and Owner
Highland Packaging
Labs, Inc.
(Manufacturing and
Packaging)(1),(4)
Peter Mayer
Consultant(3)
Thomas J. DeAngelo
Vice President - Finance
and Administration
Isomedix Inc.(3)
(1) Member of the Audit Committee
(2) Member of the Nominating
Committee
(3) Member of the Acquisition
Committee
(4) Member of the Compensation
and Stock Option Committee
EXECUTIVE OFFICERS
- ------------------------------
John Masefield
President and
Chief Executive Officer
Charles P. Truby
Executive Vice President and
Chief Operating Officer
George R. Dietz
Senior Vice President
Thomas J. DeAngelo
Vice President - Finance
and Administration and
Chief Financial Officer
INDEPENDENT ACCOUNTANTS
- ------------------------------
Coopers & Lybrand L.L.P.
Parsippany, New Jersey
GENERAL COUNSEL
- ------------------------------
Haythe & Curley
New York, New York
TRANSFER AGENT & REGISTRAR
- ------------------------------
FCTC Transfer Services, Inc.
Iselin, New Jersey
ANNUAL MEETING
The Annual Meeting of the Stockholders of the Company will be held at the
Birchwood Manor, Whippany, New Jersey on May 20, 1997, at 10:00 A.M.
FORM 10-K
Stockholders may obtain, without charge, a copy of the Company's Form 10-K as
filed with the Securities and Exchange Commission upon request to:
Vice President--Finance and Administration
Isomedix Inc.
11 Apollo Drive
Whippany, New Jersey 07981
STOCK LISTING
The Company's common stock is traded on the New York Stock Exchange under the
symbol ISO. At December 31, 1996, there were approximately 476 stockholders of
record. No dividends have been paid or declared on the common stock since the
inception of the Company.
The following table sets forth the range of high and low closing sale prices for
the Company's common stock from January 1, 1995 through December 31, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1996 1995
HIGH LOW HIGH LOW
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $16.13 $14.00 $17.50 $12.88
Second Quarter 16.00 13.88 15.75 13.50
Third Quarter 15.13 13.38 14.88 12.75
Fourth Quarter 14.75 13.00 15.38 13.13
- --------------------------------------------------------------
</TABLE>
OPERATIONS
Sterilization Facilities
Morton Grove, Illinois
Spartanburg, South Carolina*
Whitby, Ontario
Northborough, Massachusetts*
Groveport, Ohio
Whippany, New Jersey
Sandy City, Utah
Libertyville, Illinois
El Paso, Texas*
Chester, New York
Temecula, California**
Vega Alta, Puerto Rico
Skyland Scientific Services Inc.
Parsippany, New Jersey
Temecula, California
* Combined Gamma/Ethylene Oxide Facility
** Ethylene Oxide Facility
11 Apollo Drive, Whippany, New Jersey 07981-(201) 887-4700-FAX (201) 887-1476
20
<PAGE> 1
EXHIBIT 21
Isomedix Inc., a Delaware corporation, has the following
wholly-owned subsidiaries:
1. Isomedix Corporation (a corporation of the Province of Ontario)
2. Isomedix (Puerto Rico), Inc. (a Delaware corporation)
3. Isomedix Management Inc. (a Delaware corporation)
4. Isomedix Investments Inc. (a Delaware corporation)
5. Isomedix Operations Inc. (a Delaware corporation)
6. Skyland Scientific Services Inc. (a Delaware corporation)
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD] EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
-----
We consent to the incorporation by reference in the registration statements of
Isomedix Inc. and Subsidiaries on Form S-3 (File Nos. 33-52474, 33-31443) and on
Form S-8 (File Nos. 2-87989, 2-87990, 33-41016, 33-48812, 33-73128, 333-10033)
of our report dated February 11, 1997, except for Note 20 for which the date is
March 19, 1997, on our audits of the consolidated financial statements and
financial statement schedules of Isomedix Inc. and Subsidiaries as of December
31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994,
which report is included in this Annual Report on Form 10-K.
Parsippany, New Jersey
March 31, 1997
/s/ Coopers & Lybrand L.L.P.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 22,097,466
<SECURITIES> 0
<RECEIVABLES> 6,750,174
<ALLOWANCES> 390,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,487,594
<PP&E> 142,838,551
<DEPRECIATION> 59,829,729
<TOTAL-ASSETS> 115,620,332
<CURRENT-LIABILITIES> 4,262,237
<BONDS> 8,000,000
0
0
<COMMON> 71,699
<OTHER-SE> 94,288,728
<TOTAL-LIABILITY-AND-EQUITY> 115,620,332
<SALES> 45,233,183
<TOTAL-REVENUES> 45,233,183
<CGS> 22,180,257
<TOTAL-COSTS> 22,180,257
<OTHER-EXPENSES> 12,307,170
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456,002
<INCOME-PRETAX> 11,185,591
<INCOME-TAX> 4,474,236
<INCOME-CONTINUING> 6,711,355
<DISCONTINUED> 2,393,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,317,660
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
