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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission file number 0-20165
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STERIS CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 34-1482024
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5960 HEISLEY ROAD, MENTOR, OHIO 44060
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(Address of principal executive offices) (Zip Code)
(216) 354-2600
--------------
(Registrant's telephone number including area code)
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 shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common shares, as of the latest practicable date.
COMMON SHARES, WITHOUT PAR VALUE 34,153,498
-------------------------------- ----------
(Title of Class) (Outstanding at October 31, 1996)
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STERIS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE
----
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
------ ---------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30 and March 31, 1996 3
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three months and six months ended September 30, 1996 and 1995 4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six months ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS 11
-----------------------------------
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 15
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
------ ---------------------------------------------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 15
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Signature 16
</TABLE>
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PART I FINANCIAL INFORMATION
STERIS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 56,701 $ 140,788
Marketable securities 6,077 9,193
Accounts receivable 131,953 129,312
Inventories 80,890 73,718
Current portion of deferred income taxes 10,146 5,219
Prepaid expenses and other assets 7,017 9,463
----------------- -----------------
TOTAL CURRENT ASSETS 292,784 367,693
Property, plant, and equipment 141,564 155,470
Accumulated depreciation (63,514) (61,724)
----------------- -----------------
Net property, plant, and equipment 78,050 93,746
Other assets:
Intangibles 131,136 156,391
Accumulated amortization (56,495) (52,683)
----------------- -----------------
Net intangibles 74,641 103,708
Deferred income taxes 32,919 28,757
Other 1,554 2,098
----------------- -----------------
109,114 134,563
----------------- -----------------
TOTAL ASSETS $ 479,948 $ 596,002
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term indebtedness $ 1,042 $ 471
Accounts payable 33,828 31,308
Accrued income taxes 10,505 10,375
Accrued expenses and other 105,510 82,932
----------------- -----------------
TOTAL CURRENT LIABILITIES 150,885 125,086
Long-term obligations 3,102 102,572
Other liabilities 65,521 64,285
----------------- -----------------
TOTAL LIABILITIES 219,508 291,943
Shareholders' equity:
Serial preferred shares, without par value,
3,000 shares authorized; no shares outstanding
Common Shares, without par value, 100,000 shares
authorized; issued and outstanding shares of 33,586
at September 30, 1996 and
32,995 at March 31, 1996 223,411 209,811
Retained earnings 40,062 100,119
Cumulative translation adjustment and other (3,033) (5,871)
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 260,440 304,059
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 479,948 $ 596,002
================= =================
</TABLE>
See notes to consolidated condensed financial statements.
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STERIS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------ ------------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
NET REVENUE $ 138,490 $ 132,268 $ 266,358 $ 253,139
Cost of goods and services sold 85,165 84,210 165,747 158,530
-------------- -------------- -------------- --------------
GROSS PROFIT 53,325 48,058 100,611 94,609
Cost and expenses:
Selling, general, and administrative 27,570 30,934 53,688 58,521
Research and development 5,871 4,279 10,173 8,061
Non-recurring transactions--Note E 0 0 90,831 0
-------------- -------------- -------------- --------------
33,441 35,213 154,692 66,582
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS 19,884 12,845 (54,081) 28,027
Interest expense (346) (1,528) (1,948) (3,107)
Interest income and other 866 1,183 2,797 3,206
-------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 20,404 12,500 (53,232) 28,126
Income tax expense 8,866 5,301 6,825 11,755
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 11,538 $ 7,199 $ (60,057) $ 16,371
============== ============== ============== ==============
NET INCOME (LOSS) PER SHARE $ 0.33 $ 0.21 $ (1.81) $ 0.47
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
USED IN COMPUTING INCOME (LOSS) PER SHARE 35,307 35,026 33,261 34,482
============== ============== ============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
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STERIS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30
------------------------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (60,057) $ 16,371
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,184 10,319
Deferred taxes (357) 9,143
Non-recurring transactions 64,645 0
Other items 1,810 1,823
Changes in operating assets and liabilities:
Accounts receivable (1,258) 4,650
Inventories (5,137) 1,622
Other assets 163 (1,475)
Accounts payable and accruals (2,778) (13,089)
Accrued income taxes 130 (4,004)
--------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,345 25,360
INVESTING ACTIVITIES
Purchases of property, plant, equipment, and patents (6,588) (7,092)
Investment in businesses (7,482) (698)
Proceeds from notes receivable 8,438 0
Purchases of marketable securities (4,026) (4,612)
Proceeds from sales of marketable securities 7,147 3,272
--------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (2,511) (9,130)
FINANCING ACTIVITIES
Payments on notes payable (99,749) (868)
Proceeds from exercise of stock options 11,827 9,065
Tax benefits from exercise of stock options 1,773 2,602
--------------- ----------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (86,149) 10,799
Effect of exchange rate changes on cash and cash equivalents 228 1,648
--------------- ----------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (84,087) 28,677
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 140,788 64,075
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 56,701 $ 92,752
=============== ================
</TABLE>
See notes to consolidated condensed financial statements.
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STERIS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
A. - REPORTING ENTITY
STERIS Corporation ("STERIS") is a leading provider of infection prevention and
surgical support systems, products, services, and technologies to healthcare,
scientific, and industrial customers throughout the world. The Company has
approximately 3,500 Associates, Customer Support facilities in major global
markets, and manufacturing operations in the United States, Canada, Germany, and
Finland. STERIS operates in a single business segment.
On May 13, 1996, STERIS consummated a merger with AMSCO International, Inc.
("AMSCO") in a tax-free, stock-for-stock transaction (the "AMSCO Merger"). See
Note D.
B. - BASIS OF PRESENTATION
The AMSCO Merger has been accounted for by the pooling-of-interests method.
Accordingly, the accompanying consolidated condensed financial statements give
retroactive effect to the transaction and include the combined operations of
STERIS and AMSCO for all periods presented. In addition, the historical
financial information of AMSCO (previously reported on fiscal years ending
December 31) has been recast to conform to STERIS's annual reporting period
ending March 31.
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q; they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Accordingly, the reader
of these financial statements may wish to refer to the audited consolidated
financial statements of STERIS (Form 10-K for the year ended March 31, 1996) and
AMSCO (Form 8-K/A dated May 13, 1996 and filed June 25, 1996 for the year ended
December 31, 1995) filed by STERIS with the Securities and Exchange Commission.
The accompanying consolidated condensed financial statements have been prepared
in accordance with STERIS's customary accounting practices and have not been
audited. Management believes that the financial information included herein
reflects all adjustments necessary for a fair presentation of interim results
and, except as discussed in Note E, all such adjustments are of a normal and
recurring nature. The results for the six months ended September 30, 1996, are
not necessarily indicative of the results to be expected for the fiscal year
ending March 31, 1997.
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C. - EARNINGS (LOSS) PER SHARE
The computations of earnings (loss) per common share and common share equivalent
give retroactive effect to the AMSCO Merger and are based upon the weighted
average number of common shares outstanding and where applicable, the dilutive
effect of common share equivalents (consisting of stock options). Common share
equivalents were antidilutive for the six months ended September 30, 1996.
Following is a summary in thousands of common shares and common share
equivalents outstanding used in the calculations of earnings (loss) per share.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 33,409 32,564 33,261 32,168
Dilutive effect of stock options--
primary basis 1,898 2,462 0 2,314
----------- ------------ ------------ ------------
WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENTS--
PRIMARY BASIS 35,307 35,026 33,261 34,482
Additional dilutive effect of stock
options--fully diluted basis 170 90 0 295
----------- ------------ ------------ ------------
WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENTS--
FULLY DILUTED BASIS 35,477 35,116 33,261 34,777
=========== ============ ============ ============
</TABLE>
D. - AMSCO MERGER
On May 1, 1996, the shareholders of both STERIS and AMSCO approved the AMSCO
Merger. The AMSCO Merger was consummated on May 13, 1996. In accordance with the
merger agreement, each outstanding share of AMSCO common stock was converted on
a tax-free basis into 0.46 of a common share of STERIS.
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The AMSCO Merger has been accounted for as a pooling of interests and,
accordingly, the consolidated condensed financial statements give retroactive
effect to the combined operations of STERIS and AMSCO for all periods presented.
Summarized operating results of the separate entities for the period prior to
the AMSCO Merger follow (in thousands):
<TABLE>
<CAPTION>
STERIS AMSCO COMBINED
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<S> <C> <C> <C>
Three months ended September 30, 1995:
Net Revenue $21,594 $110,674 $132,268
Income from operations 4,646 8,199 12,845
Net income 2,945 4,254 7,199
Six months ended September 30, 1995:
Net Revenue $41,412 $211,727 $253,139
Income from operations 8,490 19,537 28,027
Net income 5,421 10,950 16,371
</TABLE>
Retained earnings were increased by $2,966,000 as a result of net income
recorded by AMSCO in the three month period ended March 31, 1996.
E. - NON-RECURRING TRANSACTIONS
Non-recurring charges of $81.3 million net of tax ($90.8 million pre-tax), or
$2.44 per share, were recorded in the 1997 fiscal first quarter for costs
connected to the AMSCO acquisition and merger. The charges include transaction
costs of $15.0 million and restructuring charges of $66.3 million net of tax
($75.8 million pre-tax). The transaction costs are for legal, accounting,
investment banking, and related expenses. The restructuring charges are for (i)
elimination of redundant facilities and other assets ($27.0 million), (ii)
satisfaction of AMSCO executive employment agreements and other employee
severance ($19.3 million), (iii) write-off of goodwill related to AMSCO's
Finn-Aqua business ($29.5 million), and (iv) other merger-related items. Cash
payments for the first six months of fiscal 1997 related principally to
transaction costs and executive employment agreements.
The effective income tax rate for the six months ended September 30, 1996
differed from statutory rates principally because certain non-recurring items
that increased the net loss are non-deductible for tax purposes. Non-deductible
items include the write-off of goodwill related to AMSCO's Finn-Aqua business
and provisions for certain executive severance costs. Also, additional tax
valuation allowances were provided to reflect the effects of merger activities.
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F. - INVENTORIES
Inventories were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
--------------------- -------------------
<S> <C> <C>
Raw material $27,673 $24,746
Work in process 26,856 19,139
Finished goods 26,361 29,833
--------------------- -------------------
$80,890 $73,718
===================== ===================
</TABLE>
G. - FINANCING
Concurrent with the consummation of the AMSCO Merger, STERIS entered into a two
and one-half year $125 million unsecured revolving Credit Facility. The Credit
Facility will provide credit to facilitate the integration of the operations of
STERIS or could be used for general corporate purposes. Loans under the Credit
Facility will bear interest, at STERIS's option, at either KeyBank National
Association's prime rate or LIBOR rates plus 0.25 percent to 0.35 percent. The
Credit Facility contains customary covenants which include maintenance of
certain financial ratios. Outstanding borrowing under the Credit Facility was $0
at September 30, 1996.
In July 1996, STERIS redeemed $99.4 million of AMSCO's $100 million 4.5%/6.5%
Convertible Subordinated Notes which were convertible into STERIS common shares.
This transaction had no material effect on earnings per common and common
equivalent share.
H. - CONTINGENCIES
Product Liability Exposure. As of September 30, 1996, 13 product liability
lawsuits related to AMSCO ethylene oxide ("EtO") sterilizers were pending. A
significant number of similar suits related to EtO have been either dismissed or
settled without a finding of liability. These settlements and the monetary
damages in one case where a verdict was returned against AMSCO have been nominal
or have been covered by insurance.
As of September 30, 1996, 13 product liability lawsuits unrelated to EtO, such
as lawsuits related to AMSCO non-EtO sterilizers, surgical tables and operating
room lights, were pending. Plaintiffs request all forms of damage, including
compensatory, special, exemplary and punitive damages. A significant number of
similar suits have been either dismissed or settled without a finding of
liability. Most of these settlements have been nominal, and all have been
covered by insurance.
STERIS presently anticipates having sufficient primary and excess insurance
coverage for each policy year to cover existing asserted claims for compensatory
damages, subject to applicable and customary deductibles. STERIS continues to
defend itself vigorously in all of the above actions. Although there can be no
assurance that the outcome of any of these pending lawsuits
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will be favorable to STERIS, STERIS believes that pending litigation will not
have a material adverse effect on STERIS's business or financial condition.
FDA Regulation. As disclosed in the AMSCO financial statements that are
included in the STERIS 8-K/A filed with the SEC on June 25, 1996, AMSCO was
notified by the FDA on January 20, 1995 that the FDA has applied its
Application Integrity Policy to AMSCO. Consequently, pre-market approval
applications and 510(k) notifications submitted by AMSCO will not be reviewed
by the FDA until AMSCO has completed certain corrective actions to the
satisfaction of the FDA, including audits of certain previously cleared 510(k)
notifications. The FDA's Application Integrity Policy has not been applied to
510(k) notifications submitted by STERIS. The audits have identified certain
corrective actions that AMSCO has completed or intends to complete in the near
future. STERIS cannot predict how long 510(k) notifications filed by AMSCO will
not be reviewed by the FDA. STERIS believes that there are no material AMSCO
product introductions planned for 1996 that require pre-market clearance.
STERIS is continuing its discussions with the FDA regarding steps necessary for
the FDA to resume its review of 510(k) notifications filed by AMSCO.
As a consequence of these corrective actions and given the experience of other
companies subject to the Application Integrity Policy, it is more likely than
not that the FDA will refer this matter to the Department of Justice (the "DOJ")
and that the DOJ will pursue sanctions, including, but not limited to, fines
and/or criminal sanctions. STERIS cannot predict, at this time, the impact of
this continuing FDA review or corrective actions resulting therefrom, or the
financial or other effect any fines or sanctions could have on the business, the
consolidated financial position or the results of operations. In the event the
DOJ pursues sanctions, the DOJ could apply certain guidelines that, if strictly
adhered to, could result in any such fines and/or sanctions not being material.
Subject to the matters described above, STERIS believes that it is currently in
conformity in all material respects with all regulatory requirements. It is,
however, possible that the FDA would disagree with these beliefs and seek to
apply one or more of the remedies available to it under applicable law as
described above, which could have a material adverse effect on STERIS. STERIS is
committed to maintaining compliance with all applicable FDA, EPA, and other
governmental laws and regulations.
Environmental Matters. AMSCO has been identified by the EPA as one of
approximately 50 potential responsible parties ("PRPs") within the meaning of
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(the "Superfund Act") with respect to a Superfund Act site near Erie,
Pennsylvania (the "Site"). In 1992, the EPA issued a unilateral administrative
order (the "Administrative Order") to 37 PRPs, including AMSCO, to complete the
remediation of the Site. AMSCO, together with 19 other named PRPs, have formed a
group to coordinate efforts to respond to the EPA's unilateral Administrative
Order. It is estimated that the work needed to complete the remediation of the
Site will cost between $10 million and $13 million.
Although STERIS believes that the resolution of AMSCO's liability with respect
to the Site will not have a material adverse effect on STERIS, there can be no
assurance that the ultimate
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liability will not exceed current expectations.
Certain Litigation. A complaint, purporting to be a class action on behalf of
the stockholders of AMSCO, was filed in the Chancery Court of the State of
Delaware, New Castle County on December 22, 1995. The complaint names AMSCO,
STERIS, and certain directors of AMSCO as defendants. The complaint alleges,
among other things, that the AMSCO Board breached its fiduciary duties in
considering and approving the Merger Agreement. Management of STERIS believes
that the complaint is without merit and intends to vigorously defend the action.
There are other various pending lawsuits and claims arising out of the conduct
of STERIS's business. In the opinion of management, the ultimate outcome of
these lawsuits and claims will not have a material adverse effect on STERIS's
consolidated financial position or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BASIS OF DISCUSSION
- -------------------
The AMSCO Merger has been accounted for by the pooling-of-interests method.
Accordingly, the accompanying consolidated condensed financial statements give
retroactive effect to the transaction and include the combined operations of
STERIS and AMSCO for all periods presented. In addition, the historical
financial information of AMSCO (previously reported on fiscal years ending
December 31) has been recast to conform to STERIS's annual reporting period
ending March 31.
RESULTS OF OPERATIONS
- ---------------------
Net revenue increased by 4.7% to $138.5 million in the second quarter fiscal
1997 from $132.3 million in the second quarter fiscal 1996. Net revenue
increased by 5.2% to $266.4 million in the first six months of fiscal 1997 from
$253.1 million in the same period in fiscal 1996. Infection Prevention revenues
increased by 7.4% in the second quarter fiscal 1997 to $75.9 million from $70.7
million. Infection Prevention revenues increased by 5.3% to $142.5 million in
the first six months of fiscal 1997 from $135.4 million in the same period in
fiscal 1996. Surgical Support sales increased by 5.2% to $30.6 million in the
second quarter fiscal 1997 from $29.1 million over the comparable fiscal 1996
period. Surgical Support revenues increased by 10.6% to $60.7 million in the
first six months of fiscal 1997 from $54.9 million in the same period in fiscal
1996. Scientific, Management Services and Other revenue decreased by 1.5% to
$32.0 million in the second quarter of fiscal 1997 from $32.5 million in the
second quarter fiscal 1996. Scientific, Management Services and Other revenues
increased by 0.4% to $63.1 million in the first six months of fiscal 1997 from
$62.9 million in the same period in fiscal 1996.
The costs of products and services sold increased in the second quarter fiscal
1997 by 1.1% to $85.2 million from $84.2 million in the second quarter fiscal
1996. The cost of products and services sold increased for the first six months
of fiscal 1997 by 4.6% to $165.7 million from $158.5 million for the first six
months of fiscal 1996. The cost of products and services sold as a
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percentage of net revenue was 61.5 % for the second quarter for fiscal 1997
compared to 63.7% for the same period in fiscal 1996. The decrease in the cost
of products and services sold as a percentage of net revenue resulted
principally from changes in the mix of products sold.
Non-recurring charges of $81.3 million net of tax ($90.8 million pre-tax), or
$2.44 per share, were recorded in the 1997 fiscal first quarter for costs
connected to the AMSCO acquisition and merger. The charges include transaction
costs of $15.0 million and restructuring charges of $66.3 million net of tax
($75.8 million pre-tax). The transaction costs are for legal, accounting,
investment banking, and related expenses. The restructuring charges are for (i)
elimination of redundant facilities and other assets ($27.0 million), (ii)
satisfaction of AMSCO executive employment agreements and other employee
severance ($19.3 million), (iii) write-off of goodwill related to AMSCO's
Finn-Aqua business ($29.5 million), and (iv) other merger-related items. Cash
payments for the first six months of fiscal 1997 related principally to
transaction costs and executive employment agreements.
Selling, general, and administrative expenses decreased in the second quarter
fiscal 1997 by 10.9% to $27.6 million from $30.9 million in the second quarter
fiscal 1996. Selling, general, and administrative expenses decreased in the
first six months of fiscal 1997 by 8.3% to $53.7 million from $58.5 million in
the same period fiscal 1996. Lower costs were incurred resulting from the AMSCO
acquisition and merger. The cost reductions included reduced depreciation and
amortization charges on assets that were written-down and lower personnel costs
resulting from employee severance. Selling, general, and administrative expenses
as a percentage of net revenue decreased to 19.9% in the second quarter fiscal
1997 from 23.4% for the same period in fiscal 1996. The decrease was primarily
attributable to the cost reductions resulting from the AMSCO acquisition and
merger.
Research and development expenses increased in the second quarter fiscal 1997 by
37.2% to $5.9 million from $4.3 million in the second quarter fiscal 1996.
Research and development expenses increased in the first six months of fiscal
1997 by 26.2% to $10.2 million from $8.1 million for the same period fiscal
1996. Research and development expenses as a percentage of net revenue were 4.2%
for the second quarter fiscal 1997 compared to 3.2% for the second quarter
fiscal 1996 and 3.8% for the first six months of fiscal 1997 compared to 3.2%
for the same period in fiscal 1996. The increase in dollars was due primarily to
additional product and application development expenditures.
Interest expense decreased in the second quarter fiscal 1997 by 77.4% to $0.3
million from $1.5 million in the second quarter fiscal 1996. Interest expense
decreased in the first six months of fiscal 1997 by 37.3% to $1.9 million from
$3.1 million for the same period fiscal 1996. The decrease was due primarily to
the July 1996 redemption of approximately $100 million of AMSCO 4.5%/6.5%
Convertible Subordinated Notes.
Interest income and other decreased in the second quarter fiscal 1997 by 26.8%
to $0.9 million from $1.2 million in the second quarter fiscal 1996. Interest
income and other decreased in the first six months of fiscal 1997 by 12.8% to
$2.8 million from $3.2 million for the same period fiscal 1996. The decrease was
due primarily to lower cash, cash equivalents, and marketable security balances.
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Second quarter fiscal 1997 income increased by 60.3% to $11.5 million ($.33 per
share) from $7.2 million ($.21 per share) in the second quarter fiscal 1996.
Excluding the effect of non-recurring transactions, income for the first six
months of fiscal 1997 increased by 29.8 % to $21.2 million ($.60 per share) from
$16.4 million ($.47 per share) in the same period fiscal 1996.
The effective income tax rate for the six months ended September 30, 1996
differed from statutory rates principally because certain non-recurring items
that increased the net loss are non-deductible for tax purposes. Non-deductible
items include the write-off of goodwill related to AMSCO's Finn-Aqua business
and provisions for certain executive severance costs. Also, additional tax
valuation allowances were provided to reflect the effects of merger activities.
As a result of the foregoing factors, the net loss for the first six months
ended fiscal 1997 was $60.1 million, compared to net income of $16.4 million in
the same period fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had $56.7 million in cash and cash equivalents as of September 30,
1996, compared to $140.8 million of the same at March 31, 1996. The decrease in
cash and cash equivalents was primarily a result of the July 1996 redemption of
approximately $100 million AMSCO's 4.5%/6.5% Convertible Subordinated Notes.
Marketable securities decreased by 33.9% to $6.1 million as of September 30,
1996, compared to $9.2 million at March 31, 1996.
Accounts receivable increased by 2.0% to $132.0 million as of September 30,
1996, compared to $129.3 million at March 31, 1996.
Inventory increased by 9.7% to $80.9 million as of September 30, 1996, compared
to $73.7 million at March 31, 1996.
Property, plant, and equipment decreased by 8.9% to $141.6 million as of
September 30, 1996, compared to $155.5 million at March 31, 1996. The decrease
was due primarily to the write-down of assets resulting from the AMSCO
acquisition and merger.
Intangibles decreased by 16.1% to $131.1 million as of September 30, 1996,
compared to $156.4 million at March 31, 1996. The decrease was due primarily to
the write-down of goodwill related to the Finn-Aqua business, resulting from the
AMSCO acquisition and merger.
Deferred income taxes increased by 14.5% to $32.9 million as of September 30,
1996, compared to $28.8 million at March 31, 1996. The increase was due
primarily to the recognition of costs resulting from the AMSCO acquisition and
merger.
Other assets were $1.6 million as of September 30, 1996, compared to $2.1
million of the same at March 31, 1996.
Current liabilities increased by 20.6% to $150.9 million as of September 30,
1996, compared to
Page 13
<PAGE> 14
$125.1 million at March 31, 1996. The increase in current liabilities was
primarily a result of the AMSCO merger and acquisition.
Other liabilities were $65.5 million as of September 30, 1996, compared to $64.3
million of the same at March 31, 1996.
Concurrent with the consummation of the AMSCO Merger, STERIS entered into a two
and one-half year $125 million unsecured revolving Credit Facility. The Credit
Facility will provide credit to facilitate the integration of the operations of
STERIS or could be used for general corporate purposes. Loans under the Credit
Facility will bear interest, at STERIS's option, at either KeyBank National
Association's prime rate or LIBOR rates plus 0.25 percent to 0.35 percent. The
Credit Facility contains customary covenants which include maintenance of
certain financial ratios. Outstanding borrowing under the Credit Facility was $0
at September 30, 1996. As a result of the July 1996 redemption of approximately
$100 million AMSCO's 4.5%/6.5% Convertible Subordinated Notes, STERIS has
minimal long-term indebtedness.
The Company has no material commitments for capital expenditures. The Company
believes that its cash requirements will increase due to increased sales
requiring more working capital, accelerated research and development, and
potential acquisitions or investments in complementary businesses. However, the
Company believes that its available cash, cash flow from operations, and sources
of credit will be adequate to satisfy its capital needs for the foreseeable
future.
CONTINGENCIES
- -------------
For a discussion of contingencies, see Note H to the consolidated condensed
financial statements.
Page 14
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
- ------ -----------------
Reference is made to Part I, Item 2., Note H of this Report on Form 10-Q, which
is incorporated herein by reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
The 1996 Annual Meeting of Shareholders of STERIS Corporation was held on July
25, 1996, at 5960 Heisley Road, Mentor, Ohio. At the 1996 Annual Meeting,
shareholders were asked to elect the following four directors to serve in the
class with a term expiring at the Annual Meeting of Shareholders in 1998: Jerry
E. Robertson (28,402,276 votes for, 162,334 withheld), Frank E. Samuel, Jr.
(28,409,141 votes for, 154,469 withheld), Bill R. Sanford (28,405,679 votes for,
157,931 withheld), and Loyal W. Wilson (28,408,864 votes for, 154,746 withheld).
Each of Messrs. Robertson, Samuel, Sanford, and Wilson were elected at the 1996
Annual Meeting to serve as directors in the class designated as Class II with a
term expiring in 1998.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None
Page 15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERIS Corporation
(Registrant)
/s/ Michael A. Keresman, III
-------------------------------
Michael A. Keresman, III
Chief Financial Officer and
Senior Vice President
(Principal Financial Officer)
November 14, 1996
Page 16
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<PERIOD-END> SEP-30-1996
<CASH> 56,701
<SECURITIES> 6,077
<RECEIVABLES> 131,953
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0
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