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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 0-20165
STERIS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
OHIO 34-1482024
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
5960 HEISLEY ROAD 440-354-2600
MENTOR, OHIO 44060-1834 (Registrant's telephone number
(Address of principal executive offices) including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Shares, without par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes 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 the 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]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the average of the bid and asked prices of
such stock as of May 28, 1999: $1,107,229,043
The number of Common Shares outstanding as of May 28, 1999: 67,273,468
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting -- Part III
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
STERIS Corporation, an Ohio corporation organized in 1987 (the "Company" or
"STERIS"), develops, manufactures, and markets infection prevention,
contamination prevention, microbial reduction, and surgical support systems,
products, services, and technologies for healthcare, scientific, research, food,
and industrial Customers throughout the world. STERIS is focused on helping
Customers address today's trends in the healthcare and scientific industries.
The healthcare industry is changing rapidly due to the growth of minimally
invasive surgical and diagnostic procedures; heightened public and professional
awareness and concern for the increasing number of transmittable and
antibiotic-resistant infectious diseases; the shifting of patient care from
acute care hospital settings to alternate sites; and the overall need to reduce
the cost of healthcare delivery. These trends have expanded the demand for
rapid, safe, and efficient infection prevention systems for critical tasks such
as the sterile processing of devices and the handling, decontamination,
destruction, and disposal of potentially infectious biohazardous waste. In the
scientific industry, the market is expanding as pharmaceutical, biotech, medical
device, food, and other FDA-regulated manufacturers are under increasing
pressure to adhere to stricter guidelines for the validation and control of
their antimicrobial processes, as well as the trend towards global
standardization of protocols.
The Company has 4,744 Associates (employees) worldwide, including 1,935
direct sales, service, field, and Customer Support personnel. Customer Support
and Training facilities are located in major global market centers with
production and manufacturing operations in the United States, Australia, Canada,
Germany, Finland, and Sweden.
The Company operates in a single business segment. See the accompanying
consolidated financial statements on page 17 of this Form 10-K for financial
information regarding the Company.
PRINCIPAL PRODUCTS AND SERVICES
Through a consistent strategic plan, a focused research and development
effort, and several business acquisitions, STERIS has emerged as a market leader
in low temperature sterilization, high temperature sterilization, washing and
decontamination systems, surgical tables, surgical lights, and consumables. The
Company has expanded from its original narrow product line to become a
multi-faceted global organization that serves healthcare, scientific, research,
food, and industrial markets. Revenues by principal market are as follows (in
thousands):
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YEARS ENDED MARCH 31
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1999 1998 1997
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Health Care........................................ $597,146 $547,809 $449,166
Scientific and Industrial.......................... 200,465 171,847 138,686
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Total.............................................. $797,611 $719,656 $587,852
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HEALTH CARE. Health Care products, systems, and services are used by
Customers to significantly reduce or eliminate microbial contamination of
surfaces with which human contact might occur. The Company provides complete
infection prevention material processing systems and specialty chemical
products, including those used for cleaning, decontaminating, disinfecting,
sterilizing, drying, and aerating medical and surgical instruments, devices, and
hard surfaces. Specialty chemical products are generally employed in the
material processing systems or used for high risk and routine skin care, hard
surface disinfection, and surgical preparation. STERIS infection prevention
systems support cost containment, productivity increases, and risk reduction in
a wide variety of healthcare, scientific, industrial, and research settings
through process standardization, automatic monitoring and documentation,
processing site flexibility, and reduction in processing time.
One of the Company's well known product lines is STERIS SYSTEM 1(R), a
complete system for just-in-time sterile processing at or near the site of
patient care. SYSTEM 1 enables healthcare professionals to safely,
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easily, and economically sterilize immersible surgical and diagnostic devices
between patient procedures in less than thirty minutes. The use of SYSTEM 1 also
eliminates time consuming transportation to and from central processing sites.
Customers are able to use delicate, expensive, heat-sensitive devices and
instrument sets many times per day without compromising sterilization standards.
STERIS SYSTEM 1 consists of a tabletop microprocessor-controlled unit, a
patented, proprietary, single-use sterilant, and multiple adapter trays and
containers. Installation requirements are tap water, electricity, and a drain.
STERIS 20(TM), the sterilant component of SYSTEM 1, combines a powerful chemical
biocidal agent with a proprietary anti-corrosion formulation to provide low
temperature destruction of microorganisms. The STERIS process significantly
reduces processing time and safety concerns associated with conventional low
temperature sterilization and disinfection systems. SYSTEM 1 has particular
appeal in the increasingly decentralized delivery of therapeutic patient
services where capitated costs and standardized outcomes are emphasized. Since
commercially introducing SYSTEM 1 in November 1988, the Company has produced
over 17,000 SYSTEM 1 units for thousands of healthcare facilities, including
hospitals, medical centers, ambulatory facilities, and physician offices in
major markets throughout the world.
Sales of STERIS 20 Sterilant Concentrate, the proprietary consumable
component of STERIS SYSTEM 1, continued to grow faster than overall sales. We
estimate that our Customers have now safely processed approximately 200 million
surgical and diagnostic devices in STERIS SYSTEM 1.
The products and services of STERIS are sold under a variety of brand and
product names. As acquired businesses have been integrated and consolidated, the
STERIS name is increasingly visible on the product and service offerings.
The fundamental technology of the original STERIS brand is the rapid, safe
destruction of microorganisms on surfaces. STERIS's strategy is to employ this
technology in commercial applications with a focus on sterile processing,
biohazardous waste processing, and other surface safety applications in the
healthcare industry. The technology also has applications in a wide variety of
other settings where cleanliness and destruction of microorganisms is important.
Recognized for years as the industry standard in large and medium scale,
high quality hardware systems and related service, the Amsco(R) brand represents
a leading choice in infection prevention and surgical support. Amsco brand
products include thermal and low temperature gaseous sterilization systems,
cleaning and decontamination systems, accessories, and related consumables that
are used to prevent the spread of infectious diseases and reduce microbial
contamination.
The Company's thermal sterilization systems use saturated steam to
sterilize items through a combination of heat, moisture, and pressure. Thermal
sterilizers are offered in a number of sizes based on Customer throughput
requirements and are designed for use in centralized or decentralized processing
environments. The product line includes a versatile microprocessor-based control
system which is designed to monitor each phase of the sterilization cycle and
provide the Customer a permanent record of important cycle information,
including type and parameters of sterilization cycle, temperature, pressure,
vacuum, and total cycle time. The Company's sterilizer chambers are made of
highly durable nickel-clad carbon steel or 316L stainless steel.
In fiscal 1999, the FDA cleared the STERIS System 2S(TM) for marketing.
STERIS System 2S is a self-generating steam sterilizer that is particularly well
suited for the alternate healthcare and research laboratory markets. The needs
for the costly installation of steam lines and the purchase of a separate steam
generator are eliminated. This product is now available for sale in both the US
and international markets.
In addition to thermal sterilization systems, the Company manufactures low
temperature ethylene oxide (EO) gas sterilizers which provide Customers the
capability to sterilize heat sensitive medical devices in a safe, controlled
processing environment. Each sterilization system includes an advanced
microprocessor-based control system which monitors cycle parameters and provides
the Customer a permanent record of each sterilization cycle. The Company's
leading ethylene oxide gas sterilization system, the Amsco 3017(TM) 100% EO
Sterilizer/Aerator, utilizes a proprietary, single-use sterilant cartridge and
includes a built-in exhaust system.
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STERIS develops, manufactures, and distributes infection prevention
consumables and supplies that are used to prevent the spread of infectious
diseases and to monitor sterilization and decontamination processes. STERIS
consumable products offer quality choices for infection and contamination
prevention in the following categories: Instrument Cleaning and Decontamination
Systems; High Risk and Routine Skin Care Products; Hard Surface Disinfectants;
and Surgical Scrubs. STERIS quality assurance products to monitor sterilization
processes include over 300 sterility assurance and sterility maintenance
products for the worldwide healthcare market, including: Protective and
Decontamination Packaging; Biological Monitoring Systems; Barrier Wraps;
Integrator/Indicator Monitoring Systems; and Record Keeping Systems.
The Company's Health Care product line also includes general and specialty
surgical tables, surgical and examination lights, operating room (OR) storage
cabinets, fluid waste management systems, warming cabinets, scrub sinks, and
other complementary products and accessories for hospital and non-hospital
applications. The Company's versatile surgical table product line includes
powered and manual general surgical tables and an orthopedic specialty table. A
wide variety of general and specialty surgical procedures are accommodated
through the use of attachable accessories which increase the versatility of the
tables. The Company produces and sells its own line of accessories, as well as
accessories manufactured by outside sources.
The Company's illumination and space management systems are designed for a
wide variety of locations where diagnostic and therapeutic procedures are
performed, including the emergency room, general surgery suite, OB/GYN suite,
ICU/CCU suite, and ambulatory surgery suite. The lighting products combine
optical performance with positioning flexibility that accommodate the surface
and cavity illumination needs of virtually all types of surgical procedures. The
Company's SurgiVision(TM) Surgical Lighting and Video System combines high
quality illumination with a technically advanced video system to provide
innovative and cost-effective systems for both acute care and non-acute care
Customers. The Company's products range from major surgical lights to minor
examination lights, and include the Orbiter(R) line of ceiling management
products for the operating room and critical care markets.
During fiscal 1999, STERIS entered into a joint development agreement with
Computer Motion, Inc. to develop and market voice controlled operating room
systems. The strategic alliance will integrate Computer Motion's HERMES(TM)
Control Center with STERIS's operating room equipment. Under this arrangement,
Computer Motion and STERIS will develop the software and hardware necessary to
make STERIS's products HERMES-Ready(TM). STERIS will purchase HERMES software
and hardware from Computer Motion on an OEM basis for final sale to its
Customers. Pending regulatory market clearance, STERIS will market HERMES voice
control capabilities as a value-added option on its current and future operating
room tables, lights, and surgical cameras.
The Company's Health Care product line includes SafeCycle(R) 40, a
self-contained, high volume fluid waste management system designed for the
collection, containment, transport, and safe disposal of potentially infectious
fluid waste generated during surgical and diagnostic procedures. The system
eliminates the need for up to thirteen three-liter suction canisters while
significantly reducing the possibility of human exposure to biologically
contaminated fluids.
SCIENTIFIC AND INDUSTRIAL. Scientific and Industrial contamination
prevention and control products and services are used in the pharmaceutical,
biotechnology, medical device, research, food, and industrial markets worldwide.
These products and services assist Customers in assuring sterility and other
microbial reduction processes according to worldwide regulatory and validation
requirements. The Company provides complete contamination prevention systems
including steam sterilization, liquid sterilization, electron-beam, gamma
radiation, vaporized hydrogen peroxide, and EO systems; high purity water
systems and lyophilizers (freeze drying systems); high level disinfection and
surface decontamination systems; and monitoring products.
High temperature sterilizers used by Scientific and Industrial Customers
range from standard table top and mid-sized units to large room-sized custom
installed units. The Company's line of low temperature infection control
equipment ranges from high level disinfectants to vaporized hydrogen peroxide
(VHP(R)) sterilizers. All of the Company's GMP (Good Manufacturing Practices)
systems are designed in accordance with the latest U.S. Pharmacopeia XXIII and
European Pharmacopoeia 3rd Edition requirements. Demand is fueled by the level
of scientific research and production, particularly in the pharmaceutical and
medical device industries.
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STERIS's Scientific and Industrial Group provides contract sterilization
and microbial reduction services to manufacturers of pre-packaged products,
including healthcare and consumer products. During fiscal 1998, STERIS acquired
Isomedix, Inc., a leading North American provider of contract sterilization and
microbial reduction services for manufacturers and producers of medical and
non-medical products.
STERIS established a Food Safety Division to help Customers meet the
growing consumer and regulatory demands for improved food safety. The
irradiation services of the Isomedix subsidiary recently gained media attention
with the December 1997 approval by the FDA of the irradiation ("cold
pasteurization") of red meat. The increased emphasis on food safety, supported
by the U.S. government's new Food Safety Initiative, presents new business
opportunities for STERIS because of our extensive portfolio of antimicrobial
technologies, systems, products, and services. STERIS has a network of eleven
gamma facilities and six ethlyene oxide facilities (four of which are combined
gamma/ethylene oxide) in the United States and Canada. A new electron-beam
facility in Illinois began operations in fiscal 1999.
MANUFACTURING
The Company manufactures, assembles, and packages products in Erie,
Pennsylvania; Medina, Ohio; Mentor, Ohio; Montgomery, Alabama; Research Triangle
Park, North Carolina; St. Louis, Missouri; Cologne, Germany; Helsinki, Finland;
Quebec City, Canada; Stockholm, Sweden; and Sydney, Australia. Each of the
production facilities focuses on particular processes and products. All of the
Company's equipment production facilities throughout the world are ISO 9001
certified. These factories and production facilities supply products to both
Health Care and Scientific and Industrial Customers.
Raw materials, sub-assemblies, and other components essential to the
Company's business are readily available within the lead times specified to
vendors. The supply of such raw materials has posed no significant problem in
the operation of the Company's business. All major raw materials are available
from multiple sources, both domestic and foreign.
FOREIGN OPERATIONS
The Company's foreign operations are subject to the usual risks that may
affect such operations. These include, among other things, exchange controls and
currency restrictions, currency fluctuations, changes in local economic
conditions, unsettled political conditions, and foreign government-sponsored
boycotts of the Company's products or services for noncommercial reasons. Most
of the identifiable assets associated with the Company's foreign operations are
located in countries where the Company believes such risks to be minimal. For
certain financial information regarding the Company's international operations,
see Note K-Business Segment Information to the accompanying consolidated
financial statements on page 29 of this Form 10-K.
MARKETS AND METHODS OF DISTRIBUTION
STERIS has, as of March 31, 1999, over 1,000 direct field sales and service
representatives in North America. The representatives reside in metropolitan
market areas throughout the U.S. and Canada. Sales and service activities are
supported by a staff of regionally based clinical specialists, systems planners,
corporate account managers, and an in-house Customer service and field support
department.
Customer training is an important aspect of the STERIS business. In
addition to training at Customer locations, STERIS provides a variety of courses
for Customers at the Company's training and education center. The programs
enable Customer representatives to understand the science, technology, and
operation of STERIS products. Many of the Operator Training Programs are
approved by professional certifying organizations to offer contact hours for
continuing education to eligible course participants. The first program was
implemented in July 1991, and, as of March 31, 1999, approximately 15,000
Customer representatives, primarily nurses, department managers, and biomedical
engineers, have received training at STERIS training and education centers.
The Company has adopted a strategy focused on employing direct sales,
service, and support personnel in developed international markets while
contracting with distributors in other selected markets. STERIS currently
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has sales offices in Belgium, Canada, Costa Rica, Finland, France, Germany, Hong
Kong, Italy, Japan, Korea, Mexico, the Netherlands, Puerto Rico, Singapore,
Spain, Sweden, and the United Kingdom. STERIS has distribution agreements with
medical supply distributors in Australia, and various countries in North and
South America, Asia, Europe, and the Middle East.
The Company believes that one of its strengths is its broad Customer base
with no single Customer accounting for more than two percent of sales during the
fiscal year ended March 31, 1999. Customers who are part of a buying group
generally make individual purchasing decisions and are invoiced directly by the
Company.
COMPETITION
A number of methodologies and commercial products are available for general
sterilization purposes. Getinge/Castle, Advanced Sterilization Products (Johnson
& Johnson), and 3M Corporation are well-known U.S. companies offering products
for general sterilization and disinfection. Skytron (division of KMW Group,
Inc.), Getinge/Castle, Maquet and Midmark are competitors in providing general
surgical tables. Berchtold Corporation, ALM Surgical Equipment, Inc., Heraeus
Surgical, Inc., Hill-Rom and Skytron are competitors in major surgery OR light
products. Competitors in sterility assurance products include Kimberly-Clark
Corporation, 3M Healthcare, and Allegiance (Cardinal Health). Competitors in
environmental and instrument decontamination products include Getinge/Castle,
Ecolab Inc., and Allegiance. The Company's high risk and routine skin care
products compete against the products of Ecolab, Provon (Gojo), and SaniFresh
(Kimberly-Clark). Allegiance, Becton Dickinson, Ecolab, and Purdue Frederick are
competitors in providing surgical scrubs. Competitors in the OEM service
business are local and in-hospital service groups. In contract sterilization,
the Company primarily competes with Griffith Micro Science (a business unit of
Ion Beam Applications), SteriGenics International, Inc., and companies that
sterilize products in-house. The primary competitor for the Company's Scientific
and Industrial sterilization systems is Getinge/Castle.
In the surgical support market the United States Food and Drug
Administration ("FDA") has reclassified certain products from a Device II (which
require a 510(k) application) to a Device I classification which lessens the
requirements for new products. The lower regulatory barriers could accelerate
new product introductions for the Company as well as improve the ability of
foreign competitors to introduce products into the U.S. market and as a result
increase competition.
Competition in the product markets served by the Company is based upon
product design and quality, product innovation, and product serviceability that
results in the greatest overall value to the Customer. In addition, there is
significant price competition among various instrument preparation processes and
services.
Several smaller, early-stage companies are believed to be working with a
variety of technologies and sterilizing agents, including microwave, ozone,
plasma, chlorine dioxide, peracids, and formaldehyde. In addition, a number of
companies have developed disposable medical instruments and other devices
designed to address the risk of contamination.
STERIS anticipates that it may face increased competition in the future as
new sterile processing, contamination control, and surgical support products and
services enter the market. There can be no assurance that new products or
services developed by the Company's competitors will not be more commercially
successful than those currently developed by STERIS or that may be developed by
STERIS. In addition, some of STERIS's existing or potential competitors have
greater financial, technical, and human resources than the Company. Accordingly,
the Company's competitors may succeed in developing and commercializing products
more rapidly than the Company.
GOVERNMENT REGULATION
Many of the Company's products and manufacturing processes are subject to
regulation by the United States Food and Drug Administration ("FDA"), the United
States Environmental Protection Agency ("EPA"), the United States Nuclear
Regulatory Commission, and other governmental authorities. Similar regulatory
agencies exist in other countries with a wide variety of regulatory review
processes and procedures. Many products offered for sale in Europe must meet CE
mark requirements, and must be manufactured in accordance with ISO 9001 and
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EN 46001 certification requirements. The Company's products are also subject to
review or certification by various non-governmental certification authorities,
including Underwriter's Laboratories, Canadian Standards Association, British
Standards Institute, and TUV/VDE (Europe). Compliance with the regulations and
certification requirements of domestic and foreign government regulatory and
certification authorities may delay or prevent product introductions, require
additional studies or tests prior to product introduction, require product
modifications, recalls, or mandate cessation of production and marketing of
existing products. The cost of compliance with applicable regulations represents
a considerable expense, and significant changes in such regulations or their
interpretation could have a material adverse impact.
In the United States, the FDA regulates the introduction, manufacturing,
labeling, and record keeping procedures for medical devices and drugs. The FDA
regulates the majority of products manufactured by the Company, through
marketing clearance, pre-market approvals, new drug approvals, or compliance
with established monographs. The process of obtaining marketing clearance from
the FDA for new products, new applications for existing products, and changes to
existing products can be time-consuming and expensive. In addition, whether
separate marketing clearance is required under applicable regulations for any
particular product is often a matter of interpretation and judgment. There is no
assurance that marketing clearances will be granted, that the FDA will agree or
continue to agree with all judgments made from time to time by the Company with
respect to whether or not marketing clearance is required for any particular new
or existing product, or that the FDA review will not involve delays that would
adversely affect the Company's ability to commercialize additional products or
applications for existing products. Similar approvals by comparable agencies are
required in most countries. Foreign regulatory requirements may vary widely from
country to country. The time required to obtain market clearance from a foreign
country may be longer or shorter than that required by the FDA or other
agencies, and clearance or approval or other product requirements may differ.
Even if regulatory clearances to market a product are obtained from the FDA
or comparable foreign agencies, these clearances may entail limitations on the
indicated uses of the product. Product clearances granted by the FDA or
comparable foreign agencies can also be withdrawn due to failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
approval. The FDA could also limit or prevent the manufacture or distribution of
the Company's products and has the power to require the recall of such products.
FDA regulations depend heavily on administrative interpretation and there can be
no assurance that future interpretations made by the FDA or other regulatory
bodies, with possible retroactive effect, will not adversely affect the Company.
Further, additional government regulation may be established that could prevent,
delay, or result in the rejection of regulatory clearance of the Company's
products. The effect of government regulation that may arise from future
legislation or administrative action cannot be predicted.
The FDA, various state agencies, and foreign regulatory agencies also have
the right to inspect the Company's facilities from time to time to determine
whether the Company is in compliance with various regulations relating to the
Quality Systems Regulations ("QSR"), validation, testing, quality control, and
product labeling. In complying with QSR, manufacturers must continue to expend
time, money, and effort in the areas of production and quality control in order
to ensure full regulatory compliance.
Failure to comply with any applicable regulatory requirements could result
in sanctions being imposed on the Company, including warning letters,
injunctions, civil money penalties, failure of the FDA or comparable foreign
agencies to grant pre-market clearance or pre-market approval of medical
devices, product recalls, operating restrictions, and, in extreme cases,
criminal sanctions.
In addition, the Company is and may be subject to regulation under state,
federal, and foreign law regarding occupational safety, environmental
protection, and hazardous and toxic substance control, and to other present and
possible future local, state, federal, and foreign regulation. The gamma
irradiation and ethylene oxide sterilization activities of the Company produce
virtually no harmful solid, liquid, or gaseous effluents or pollutants.
The Company believes that it is currently in conformity in all material
respects with applicable regulatory requirements. The Company has received
licenses and permits it believes necessary to conduct its current manufacturing
and contract sterilization business and believes that it will be able to obtain
any permits necessary for the future conduct of its manufacturing and contract
sterilization business. The Company is committed to
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maintaining compliance with applicable FDA, EPA, and other governmental laws,
regulations and nongovernmental certification authorities.
EMPLOYEES
As of March 31, 1999, the Company employed 4,744 Associates (employees).
Management considers its relations with its Associates to be good. During fiscal
1999, STERIS and various union locals announced the early negotiation and
ratification of new collective bargaining agreements, each of which extend for
eight or more years. The new contracts were reached with UAW Local 832 and IAM
Local 1968, District Lodge 116, at the STERIS Erie plant, Teamsters Local 688 at
the St. Louis plant, and IUE Local 823 at the St. Louis plant. The progressive
contracts enhance overall productivity, efficiency, cost control, and future job
opportunities.
INTELLECTUAL PROPERTY AND RESEARCH AND DEVELOPMENT
The Company protects its technology and products by, among other means,
filing U.S. and foreign patent applications that it considers important to its
business. There can be no assurance, however, that any patent will provide
adequate protection for the technology or product it covers. In addition, the
process of obtaining and protecting patents can be long and expensive. The
Company also relies upon trade secrets, technical know-how, and continuing
technological innovation to develop and maintain its competitive position.
Research activities are important to the Company's business. The costs of
the Company's research activities relating to the discovery and development of
new products and the improvement of existing products amounted to $24.8 million,
$23.9 million, and $22.0 million in fiscal years 1999, 1998, and 1997,
respectively. These costs are charged directly to income in the year in which
incurred.
As of March 31, 1999, the Company held 234 U.S. patents and 333 foreign
patents with expiration dates ranging from 1999 to the year 2017. In addition,
the Company, as of March 31, 1999, had 93 U.S. patents and 197 foreign patents
pending.
The Company also considers its various trademarks to be valuable in the
marketing of its products. The Company has a total of 779 trademark
registrations in the United States and in various foreign countries in which the
Company does business.
ITEM 2. PROPERTIES
At March 31, 1999, the Company operated 23 manufacturing, distribution, and
engineering facilities comprising approximately 2.4 million square feet.
Substantially all such facilities are owned. Seventeen of these sites are
located in the United States, with the others located in Australia, Canada,
Finland, Germany, and Sweden. Management believes that its facilities are
adequate for operations and are maintained in good condition. At March 31, 1999,
the Company leased or owned sales, service and support offices in 18 countries.
The Company is confident that, if needed, it will be able to acquire additional
facilities at commercially reasonable rates.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note J-Contingencies to the accompanying consolidated
financial statements on page 29 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's 1999 fiscal year.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company.
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NAME AGE POSITION
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Bill R. Sanford...................... 55 Chairman of the Board of Directors, President,
and Chief Executive Officer
Michael A. Keresman, III............. 41 Senior Vice President and Chief Information
Officer
Thomas J. Magulski................... 54 Senior Vice President
David C. Dvorak...................... 35 Vice President, General Counsel, and Secretary
William A. O'Riordan................. 40 Vice President
Paul A. Zamecnik..................... 39 Vice President
</TABLE>
The following is a brief account of the business experience during the past
five years of each such executive officer:
BILL R. SANFORD serves as Chairman of the Board of Directors,
President, and Chief Executive Officer. He joined the Company April 1,
1987.
MICHAEL A. KERESMAN, III serves as a Senior Vice President and Chief
Information Officer. He joined the Company in January 1988 as Director of
Finance and has held positions as Chief Financial Officer, Vice President
of Finance, Vice President of Finance and Administration, Vice President of
Finance and Operations, Secretary, and Vice President of Business
Development.
THOMAS J. MAGULSKI serves as a Senior Vice President and Group
President of the Scientific & Industrial Group. He joined the Company in
January 1999. Mr. Magulski served as an outside member of the STERIS
Corporation Board of Directors since 1989. Mr. Magulski served as President
and Chief Operating Officer of Versa Technologies, Inc., a manufacturer of
custom engineered components and systems, from 1993 to 1998.
WILLIAM A. O'RIORDAN serves as Vice President and Group President of
the Health Care Group. He joined the Company in 1991 and has served as
Division Vice President -- Customer Support, Vice President -- Operations,
Group Vice President -- Customer Support and Corporate Vice President --
Global Operations. He became Group President in April 1999.
DAVID C. DVORAK serves as Vice President, General Counsel, and
Secretary. He joined the Company in June 1996. Prior to joining the
Company, Mr. Dvorak served as an attorney with Thompson Hine & Flory LLP
from 1994 to 1996, and with Jones, Day, Reavis & Pogue from 1991 to 1994.
PAUL A. ZAMECNIK serves as Vice President and Group President of the
Product Systems Group. He joined the Company in July 1992 as Director of
Marketing and was appointed Vice President with responsibility for
Regulatory Affairs and Quality Systems in November 1993. He became Group
President in January 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION AND DIVIDENDS
The Company's Common Shares are traded on the New York Stock Exchange under
the symbol "STE." The following table sets forth, for the periods indicated, the
high and low sales prices for the Company's Common Shares.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------
MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
-------- ----------- ------------ -------
<S> <C> <C> <C> <C>
FISCAL 1999
High................................. $35.06 $29.00 $35.94 $33.50
Low.................................. 25.00 18.50 22.59 25.44
FISCAL 1998
High................................. $30.50 $25.13 $22.06 $19.50
Low.................................. 22.66 16.13 17.19 11.75
</TABLE>
The Company has not paid any cash dividends on its Common Shares since its
inception and does not anticipate paying any such dividends in the foreseeable
future. The Company has entered into a credit agreement which includes
operational conditions and financial ratio covenants that, in certain
circumstances, could limit the Company's ability to pay dividends. The Company
currently intends to retain all of its earnings for the operation and expansion
of its businesses. At May 28, 1999, there were approximately 2,024 holders of
record of the Company's Common Shares.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
--------------------------------------------------------
1999(1) 1998(1) 1997(1) 1996(2) 1995(2)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONAL DATA:
Net revenue....................... $797,611 $719,656 $587,852 $534,612 $545,752
Gross profit...................... 368,591 324,558 231,845 202,701 204,824
Non-recurring expenses............ 90,831 26,996
Income (loss) from operations..... 136,379 112,614 (6,487) 69,731 38,645
Income (loss) from continuing
operations..................... 84,854 65,496 (30,606) 40,790 15,736
Loss from discontinued
operation...................... (51,658)
Loss on the extinguishment of
debt........................... (1,655)
-------- -------- -------- -------- --------
Net income (loss)................. $ 84,854 $ 65,496 $(30,606) $ 40,790 $(37,577)
======== ======== ======== ======== ========
Income (loss) per Common Share --
basic
From continuing operations..... $ 1.24 $ 0.96 $ (0.45) $ 0.63 $ 0.25
From discontinued operation.... (0.83)
From extinguishment of debt.... (0.03)
-------- -------- -------- -------- --------
Net income (loss).............. $ 1.24 $ 0.96 $ (0.45) $ 0.63 $ (0.61)
======== ======== ======== ======== ========
Shares used in computing net
income (loss) per
share -- basic............... 68,200 67,898 67,356 65,022 62,048
Income (loss) per Common Share --
diluted
From continuing operations........ $ 1.20 $ 0.93 $ (0.45) $ 0.59 $ 0.23
From discontinued operation....... (0.77)
From extinguishment of debt....... (0.02)
-------- -------- -------- -------- --------
Net income (loss)................. $ 1.20 $ 0.93 $ (0.45) $ 0.59 $ (0.56)
======== ======== ======== ======== ========
Shares used in computing net
income (loss) per
share -- diluted............... 70,592 70,224 67,356 69,714 67,072
BALANCE SHEET DATA:
Working Capital................... $236,260 $174,678 $143,734 $231,996 $177,470
Total assets...................... 865,996 728,069 539,455 592,697 535,454
Long-term debt.................... 221,500 152,879 35,879 102,631 103,585
Total liabilities................. 430,059 369,117 244,739 288,638 297,645
Total shareholders' equity........ 435,937 358,952 294,716 304,059 237,809
</TABLE>
- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) Includes the combined results of STERIS and Amsco on a pooling-of-interests
basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998
Net revenues increased by 10.8% to $797.6 million in fiscal 1999 from
$719.7 million in fiscal 1998. Health Care Group revenues increased by 9.0% to
$597.1 million in fiscal 1999 from $547.8 million in fiscal 1998. Scientific &
Industrial Group revenues increased 16.7% to $200.5 million in fiscal 1999 from
$171.8 million in fiscal 1998. North America revenues for fiscal 1999 were
$701.1 million, or 87.9% of total revenues, with $96.5 million, or 12.1%, from
International markets. North America revenues for fiscal 1998 were $633.3
11
<PAGE> 12
million, or 88.0% of total revenues, with $86.4 million, 12.0% from
International markets. Revenues from consumables and services contributed $429.3
million, or 53.8%, of total revenues for fiscal 1999 compared to $359.6 million,
or 50.0% in the prior year. The increase in net revenues was due principally to
higher sales of capital equipment, consumable products, and services.
The cost of products and services sold increased by 8.6% to $429.0 million
in fiscal 1999 from $395.1 million in fiscal 1998. The cost of products and
services sold as a percentage of net revenues was 53.8% in fiscal 1999 compared
to 54.9% in fiscal 1998. The decrease in the cost of products and services sold
as a percentage of net revenue for fiscal 1999 resulted principally from
improved overhead absorption from volume increases, favorable changes in the mix
of products sold, and the benefits from the restructuring of the acquired and
merged businesses.
Selling, informational, and administrative expenses increased in fiscal
1999 by 10.3% to $207.4 million from $188.0 million in fiscal 1998. The increase
in expenses was attributable to the continued investments in customer support
systems, information technology systems, and to support the increased level of
business. The expenses as a percentage of net revenue decreased to 26.0% in
fiscal 1999 from 26.1% in fiscal 1998.
Research and development expenses increased by 3.9% to $24.8 million in
fiscal 1999 from $23.9 million in fiscal 1998. Research and development expenses
as a percentage of net revenues were 3.1% in fiscal 1999 compared to 3.3% in
fiscal 1998.
Interest expense increased by 72.1% to $10.7 million in fiscal 1999 from
$6.2 million in the fiscal 1998. The increase was due to the additional
borrowing under the Credit Facility principally for the purchase of acquired
companies and funding the Company's share repurchase plan.
Income tax expense decreased to 33.3% of pretax income in fiscal 1999 from
39.0% of pretax income in fiscal 1998. The decrease was due to recent events
which enabled STERIS to capitalize on its previously implemented tax planning
strategies and the effective integration of its previously acquired businesses.
A significant component of the decrease was a one-time $6.0 million reduction in
the income tax accruals. Excluding the one-time reduction, the effective income
tax rate decreased to 38.0% of pretax income in fiscal 1999 from 39.0% of pretax
income in fiscal 1998.
Net income for fiscal 1999 increased by 29.6% to $84.9 million ($1.20 per
diluted share) from $65.5 million ($.93 per diluted share) in fiscal 1998.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Net revenues increased by 22.4% to $719.7 million in fiscal 1998 from
$587.9 million in fiscal 1997. Health Care Group revenues increased by 22.0% to
$547.8 million in fiscal 1998 from $449.2 million in fiscal 1997. Scientific &
Industrial Group revenues increased 23.9% to $171.8 million in fiscal 1998 from
$138.7 million in fiscal 1997. North America revenues for fiscal 1998 were
$633.3 million, or 88.0% of total revenues, with $86.4 million, or 12.0%, from
International markets. North America revenues for fiscal 1997 were $522.9
million, or 88.9% of total revenues, with $65.0 million, 11.1% from
International markets. Revenues from consumables and services contributed $359.6
million, or 50.0%, of total revenues for fiscal 1998 compared to $282.8 million,
or 48.1% in the prior year. The increase in net revenues was due principally to
higher sales of capital equipment and consumable products as well as higher
Scientific and Industrial revenues through the acquisition of Isomedix. (See
Note-A -- Accounting Policies -- Business Combinations to the accompanying
consolidated financial statements on page 22 of this Form 10-K.) In addition to
higher sales of previously existing products, a portion of the increase in sales
of consumable products was a result of the full year effect of the December 1996
acquisition of the assets of the infection prevention and contamination
prevention businesses of Calgon Vestal Laboratories, and the fiscal second
quarter 1997 acquisition of Surgicot, Inc., a manufacturer and supplier of
biological and chemical sterile process monitors, sterilization wraps and
pouches, and other quality assurance products. Revenues related to the Health
Care and Scientific and Industrial classifications each include revenues from
capital equipment, consumable products, and services.
The cost of products and services sold increased by 11.0% to $395.1 million
in fiscal 1998 from $356.0 million in fiscal 1997. The cost of products and
services sold as a percentage of net revenues was 54.9%
12
<PAGE> 13
in fiscal 1998 compared to 60.6% in fiscal 1997. The decrease in the cost of
products and services sold as a percentage of net revenues in fiscal 1998
resulted principally from improved overhead absorption from plant consolidation
and volume increases, vertical integration, favorable changes in the mix of
products sold, and the benefits from the restructuring of the acquired and
merged businesses.
Selling, informational, and administrative expenses increased in fiscal
1998 by 49.8% to $188.0 million from $125.5 million in fiscal 1997. The increase
was primarily attributable to investments in Customer Support, direct sales
efforts in key global markets, business development and management information
systems as well as the inclusion of selling, informational, and administrative
expenses of acquired companies.
Research and development expenses increased by 8.8% to $23.9 million in
fiscal 1998 from $22.0 million in fiscal 1997. Research and development expenses
as a percentage of net revenues were 3.3% in fiscal 1998 compared to 3.7% in
fiscal 1997.
Non-recurring charges of $81.3 million net of tax ($90.8 million pre-tax),
or $1.22 per share, were recorded in the 1997 fiscal first quarter for costs
connected to the Amsco Merger. The charges include transaction costs of $15.0
million and restructuring charges of $66.3 million net of tax.
Interest expense increased by 113.7% to $6.2 million in fiscal 1998 from
$2.9 million in fiscal 1997. The increase was due to the additional borrowing
under the Credit Facility for the purchase of Isomedix common shares.
Interest income and other decreased by 78.4% to $1.0 million in fiscal 1998
from $4.5 million in fiscal 1997. The decrease in interest income was due
primarily to lower cash, cash equivalents, and marketable security balances,
with the lower balances resulting from the July 1996 redemption of approximately
$100 million of Amsco 4.5%/6.5% Convertible Subordinated Notes.
Excluding the effect of non-recurring items, income increased by 29.2% to
$65.5 million ($.93 per diluted share) in fiscal 1998 from $50.7 million ($.71
per diluted share) in fiscal 1997.
The effective income tax rate for fiscal year 1997 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, net income for fiscal 1998 was $65.5
million compared to a net loss for fiscal 1997 of $30.6 million.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $23.7 million in cash and cash
equivalents, compared to $17.2 million of cash, cash equivalents, and marketable
securities at March 31, 1998. The increase was primarily a result of net cash
provided by operating and financing activities, offset by net cash used in
investing activities.
At March 31, 1999, the Company had accounts receivable of $230.3 million,
compared to $204.0 million at March 31, 1998. The increase was primarily
attributed to increased revenues in the fourth quarter fiscal 1999 compared to
the fourth quarter fiscal 1998.
At March 31, 1999, the Company had inventory of $99.3 million, compared to
$83.1 million at March 31, 1998. The increase was necessary to support the
increase in product sales.
Property, plant, and equipment increased by 28.6% to $372.4 million as of
March 31, 1999, compared to $289.7 million at March 31, 1998. The increase was
due primarily to the increases resulting from the investment in information
systems, plant and equipment, facility renovations, and acquired businesses that
were accounted for using the purchase method of accounting.
Intangibles increased by 16.7% to $280.8 million as of March 31, 1999,
compared to $240.5 million at March 31, 1998. The change resulted primarily
because of an increase related to goodwill and intangibles of acquired
companies.
13
<PAGE> 14
Net deferred income tax assets decreased by 34.9% to $19.1 million as of
March 31, 1999, compared to $29.3 million at March 31, 1998. The decrease was
due primarily to the recognition of amounts for tax purposes during fiscal 1999
that were previously recognized for financial reporting purposes.
Current liabilities decreased by 5.0% to $157.1 million as of March 31,
1999, compared to $165.4 million at March 31, 1998. Accruals for warranty and
product upgrade costs declined during fiscal 1999 principally because of changes
in the delivery of warranty service and the ending of product upgrade programs.
Other liabilities were $48.6 million as of March 31, 1999, compared to
$50.8 million of the same at March 31, 1998.
On January 26, 1999, STERIS entered into a $400 million Credit Facility,
which replaced the prior revolving Credit Facility. The new Credit Facility
includes an unsecured revolver of $250 million which matures January 26, 2002.
The remaining $150 million is an unsecured 364 day facility maturing on January
25, 2000, which can be extended annually for 364 days. The new $400 million
Credit Facility may be used for general corporate purposes and will bear
interest at either KeyBank National Association's prime rate or LIBOR rates plus
.325 percent to .700 percent, which amounted to 5.4 percent and 6.0 percent at
March 31, 1999 and 1998, respectively. The Credit Facility contains customary
covenants which include maintenance of certain financial ratios. As of March 31,
1999, $28 million could be used for dividend distributions under these
provisions.
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.
The overall effects of inflation on the Company's business during the
periods discussed have not been significant. The Company monitors the prices it
charges for its products and services on an ongoing basis and believes that it
will be able to adjust those prices to take into account future changes in the
rate of inflation.
The overall effects of foreign currency exchange rates on the Company's
business during the periods discussed have not been significant. Movements in
foreign currency exchange rates create a degree of risk to the Company's
operations. These movements affect the U.S. dollar value of sales made in
foreign currencies, and the U.S. dollar value of costs incurred in foreign
currencies. Changing currency exchange rates also affect the company's
competitive position, as exchange rate changes may affect profitability and
business and/or pricing strategies of non-U.S. based competitors.
CONTINGENCIES
For a discussion of contingencies, see Note J to the consolidated financial
statements.
YEAR 2000 DATE CONVERSION
An issue affecting STERIS and most other companies is how computer systems
and applications recognize and process date-sensitive information. Some older
computer programs were written using two digits rather than four to define the
applicable year. As a result, those computer programs have time-sensitive
software that recognize a date using "00" as the year 1900 rather than the year
2000. Without corrective actions, this could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company has investigated the impact of the year 2000 issue on its
products and does not anticipate any effect on the performance of its products.
The Company is in the process of assessing and implementing necessary changes
for all areas of the Company's business which could be impacted; these include
such areas as business computer systems, technical infrastructure, plant floor
equipment, building infrastructure, end-user computing, and suppliers. The
Company has initiated a project to prepare its computer systems for the year
2000 and is addressing the year 2000 issues.
14
<PAGE> 15
The Company's year 2000 program activities include the identification of
affected hardware and software, the development of a plan for remediating those
systems in the most effective manner, the execution of that plan, which includes
continuous testing, and the monitoring of the program's success. Although
various locations are at differing stages of readiness with respect to the
various focus areas, the identification and plan development phases of the
project are substantially completed. The Company is well underway in the
execution phase and anticipates completing the majority of the program by
mid-year 1999 although certain applications will be completed throughout the
second half of 1999. Continuous review and testing are being conducted
throughout all phases of the program to help ensure that compliance is achieved
and maintained as the year 2000 approaches.
The Company has implemented year 2000 compliant systems in a number of
areas, including order entry systems. In a number of instances, the Company is
replacing non-compliant systems with newer systems which will significantly
improve functionality as well as appropriately interpret the calendar year 2000
and beyond. Although the timing of these actions may have been influenced by the
year 2000 issue, in virtually all instances they involve capital expenditures
that would have occurred in the normal course of business. While the Company is
implementing a year 2000 vendor compliance program, the Company has little
direct control over whether its suppliers will make the appropriate
modifications to their systems and applications on a timely basis.
As part of the year 2000 program, contingency plans are being formalized as
the target date for completion approaches. Business disruption scenarios are
currently being identified and appropriate strategies are being evaluated in the
development of these various plans. The Company is in the process of developing
contingency plans (e.g., the selection of alternative suppliers) to address the
potential business disruption scenarios that are being identified.
Operating expenses include costs incurred in preparing systems and
applications for the year 2000. The Company expects to incur internal staff
costs as well as outside services (including consultants) and other expenses
related to the conversion and testing of the systems and applications. These
costs, which are expensed as incurred, have been immaterial to date. The year
2000 costs include internal modification and testing costs as well as costs
associated with supply chain risk assessment and contingency planning.
Based on assessments completed to date and compliance plans in process, the
Company believes that it has an effective program in place to resolve the year
2000 challenges in a timely manner and the Company does not expect that the year
2000 issues will have a material effect on its business operations or results of
operations. However, satisfactory completion of the program may not prevent
business disruptions resulting from actions of critical suppliers and Customers.
Such disruptions would impair the Company's ability to obtain necessary
materials for production or sell products to Customers. If such disruptions
occurred, the Company may experience lost or delayed sales and profits depending
on the duration of the disruptions. Key aspects of the program are addressing
potential uncertainties but the Company's ability to be fully confident of
conditions related to third parties is limited. Currently, the Company cannot
reasonably estimate the amount of potential lost or delayed sales and profits.
EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Monetary Union (EMU) began a three-year transition phase during which a common
currency called the Euro was adopted as their legal currency. The Euro began
trading on currency exchanges and is available for non-cash transactions. During
the transition period, parties may pay for goods and services using either the
Euro or the participating country's legacy currency on a "no compulsion, no
prohibition" basis. The conversion rates between the existing legacy currencies
and the Euro were fixed on January 1, 1999. The legacy currencies will remain
legal tender for cash transactions between January 1, 1999, and January 1, 2002,
at which time all legacy currencies will be withdrawn from circulation and the
new Euro denominated bills and coins will be used for cash transactions.
The Company has several operations within the eleven participating
countries that will be utilizing the Euro as their local currency in 1999.
Additionally, the Company's operations in other European countries and elsewhere
in the world will be conducting business transactions with Customers and
suppliers that will be denominated in the Euro. Euro denominated bank accounts
have been established to accommodate Euro
15
<PAGE> 16
transactions. The Company's exposure to changes in foreign exchange rates may
also be reduced as a result of the Euro conversion.
The Company has established plans to review strategic and tactical areas
arising from the Euro conversion. Immediate efforts have been focused on aspects
of the Euro conversion that required adjustment or compliance by January 1,
1999, and for conducting Euro-denominated business during 1999. These aspects
included transacting business in the Euro, the competitive impact on product
pricing, and adjustments to billing systems to handle parallel currencies. The
Company has determined that these systems have the capability to handle Euro
transactions and is currently in a position to transact business in Euros.
Continuing analysis and development efforts will help ensure that the
implementation of the Euro meets the timetable and regulations established by
the EMU.
Based on current estimates, the Company does not expect the costs incurred
to address the Euro will have a material impact on its financial condition or
results of operations.
FORWARD-LOOKING STATEMENTS
This discussion contains statements concerning certain trends and other
forward-looking information affecting or relating to the Company and its
industry that are intended to qualify for the protections afforded
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. There are many important factors that could cause actual results to
differ materially from those in the forward-looking statements. Many of these
important factors are outside STERIS's control. Changes in market conditions,
including competitive factors and changes in government regulations, could cause
actual results to differ materially from the Company's expectations. No
assurance can be provided as to any future financial results. Other potentially
negative factors that could cause actual results to differ materially from those
in the forward-looking statements include (a) the possibility that the
continuing integration of acquired businesses will take longer than anticipated,
(b) the potential for increased pressure on pricing that leads to erosion of
profit margins, (c) the possibility that market demand will not develop for new
technologies, products, and applications, (d) the potential effects of
fluctuations in foreign currencies, (e) the potential that the impact of
weakened currencies in Southeast Asia could spread to countries where the
Company does a sizable amount of business, and (f) the possibility of reduced
demand, or reductions in the rate of growth in demand, for the Company's
products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk through various financial
instruments, including fixed rate and floating rate debt instruments. Based on
March 31, 1999 debt levels, a 1% change in interest rates would impact interest
expense by approximately $1.6 million annually. Additionally, the Company
operates internationally and as a result is exposed to foreign currency
fluctuations. Specifically, the exposure includes intercompany loans, and third
party sales or payments. The Company does not consider the market risk
associated with its international operations to be material. The Company does
not use derivative financial instruments for hedging or speculative purposes.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
STERIS Corporation
We have audited the accompanying consolidated balance sheets of STERIS
Corporation and subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14(a)(2).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 STERIS
Corporation and subsidiaries at March 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Cleveland, Ohio
April 26, 1999
17
<PAGE> 18
STERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31
---------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 23,680 $ 17,172
Accounts receivable (net of allowances of $6,000 and
$6,780, respectively).................................. 230,346 203,992
Inventories............................................... 99,279 83,149
Deferred income taxes..................................... 21,910 23,609
Prepaid expenses and other assets......................... 18,182 12,154
--------- --------
TOTAL CURRENT ASSETS........................................ 393,397 340,076
Property, plant, and equipment.............................. 372,386 289,658
Accumulated depreciation.................................... (111,105) (84,366)
--------- --------
Net property, plant, and equipment........................ 261,281 205,292
Intangibles................................................. 280,750 240,488
Accumulated amortization.................................... (72,499) (66,516)
--------- --------
Net intangibles........................................... 208,251 173,972
Deferred income taxes....................................... 0 5,710
Other assets................................................ 3,067 3,019
--------- --------
TOTAL ASSETS................................................ $ 865,996 $728,069
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term indebtedness................. $ 2,200 $ 2,200
Accounts payable.......................................... 47,431 37,213
Accrued expenses and other................................ 107,506 125,985
--------- --------
TOTAL CURRENT LIABILITIES................................... 157,137 165,398
Long-term indebtedness...................................... 221,500 152,879
Deferred income taxes....................................... 2,810 0
Other liabilities........................................... 48,612 50,840
--------- --------
TOTAL LIABILITIES........................................... 430,059 369,117
Shareholders' equity:
Serial preferred shares, without par value, 3,000 shares
authorized; no shares outstanding
Common Shares, without par value, 300,000 shares
authorized; issued and outstanding shares of 67,956 at
March 31, 1999 and 68,021 at March 31, 1998, excluding
523 and 458 treasury shares, respectively.............. 222,946 230,477
Retained earnings........................................... 219,863 135,009
Cumulative translation adjustment........................... (6,872) (6,534)
--------- --------
TOTAL SHAREHOLDERS' EQUITY.................................. 435,937 358,952
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 865,996 $728,069
========= ========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
STERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $797,611 $719,656 $587,852
Cost of products sold...................................... 429,020 395,098 356,007
-------- -------- --------
GROSS PROFIT............................................... 368,591 324,558 231,845
Cost and expenses:
Selling, informational, and administrative............... 207,375 188,030 125,515
Research and development................................. 24,837 23,914 21,986
Non-recurring items...................................... 90,831
-------- -------- --------
232,212 211,944 238,332
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS.............................. 136,379 112,614 (6,487)
Interest expense........................................... (10,736) (6,239) (2,919)
Interest income and other.................................. 1,553 980 4,544
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.......................... 127,196 107,355 (4,862)
Income taxes............................................... 42,342 41,859 25,744
-------- -------- --------
NET INCOME (LOSS).......................................... $ 84,854 $ 65,496 $(30,606)
======== ======== ========
NET INCOME (LOSS) PER SHARE -- BASIC....................... $ 1.24 $ 0.96 $ (0.45)
======== ======== ========
NET INCOME (LOSS) PER SHARE -- DILUTED..................... $ 1.20 $ 0.93 $ (0.45)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
STERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ 84,854 $ 65,496 $(30,606)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 33,279 24,202 18,681
Deferred income taxes................................... 14,000 7,446 (12,173)
Non-recurring items..................................... 55,944
Other items............................................. (1,252) (5,577) (664)
Changes in operating assets and liabilities:
Accounts receivable.................................. (22,654) (31,945) (33,559)
Inventories.......................................... (12,998) (11,311) 5,086
Other assets......................................... (5,229) 368 2,645
Accounts payable and accruals........................ (25,541) (36,686) 10,932
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 64,459 11,993 16,286
INVESTING ACTIVITIES
Purchases of property, plant, equipment, and patents...... (77,286) (39,181) (20,468)
Proceeds from sales of assets............................. 43,084
Investment in businesses, net of cash acquired............ (41,457) (126,505) (82,586)
Proceeds from notes receivable............................ 8,438
Purchases of marketable securities........................ (6,970)
Proceeds from sales of marketable securities.............. 2,977 13,231
--------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES..................... (118,743) (119,625) (88,355)
FINANCING ACTIVITIES
Payments on long term obligations......................... (206,339) (4,512) (106,802)
Borrowing under line of credit............................ 275,000 110,000 40,000
Purchase of treasury shares............................... (17,697) (10,051) (11,418)
Stock option and other equity transactions................ 10,166 9,250 32,945
--------- --------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 61,130 104,687 (45,275)
Effect of exchange rate changes on cash and cash
equivalents............................................. (338) (459) (2,869)
--------- --------- --------
Increase (decrease) in cash and cash equivalents.......... 6,508 (3,404) (120,213)
Cash and cash equivalents at beginning of period.......... 17,172 20,576 140,789
--------- --------- --------
Cash and cash equivalents at end of period................ $ 23,680 $ 17,172 $ 20,576
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
STERIS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON SHARES CUMULATIVE TOTAL
------------------ RETAINED TRANSLATION SHAREHOLDERS
NUMBER AMOUNT EARNINGS AND OTHER EQUITY
------ -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1996............ 65,972 $209,751 $100,119 $(5,811) $304,059
Net loss............................ (30,606) (30,606)
Foreign currency translation
adjustment (including taxes of
$1,545)........................... (2,869) (2,869)
--------
Comprehensive loss.................. (33,475)
Stock options exercised............. 2,897 27,807 27,807
Tax benefit of stock options
exercised......................... 5,138 5,138
Treasury shares purchased........... (900) (11,418) (11,418)
Amortization of Restricted Stock
Award and options issued at a
discounted price.................. 2,605 2,605
------ -------- -------- ------- --------
BALANCE AT MARCH 31, 1997........... 67,969 231,278 69,513 (6,075) 294,716
Net income.......................... 65,496 65,496
Foreign currency translation
adjustment (including taxes of
$247)............................. (459) (459)
--------
Comprehensive income................ 65,037
Stock options exercised............. 652 6,584 6,584
Tax benefit of stock options
exercised......................... 2,666 2,666
Treasury shares purchased........... (600) (10,051) (10,051)
------ -------- -------- ------- --------
BALANCE AT MARCH 31, 1998........... 68,021 230,477 135,009 (6,534) 358,952
Net income.......................... 84,854 84,854
Foreign currency translation
adjustment (including taxes of
$207)............................. (338) (338)
--------
Comprehensive income................ 84,516
Stock options exercised............. 631 5,489 5,489
Other equity transactions........... 4 109 109
Tax benefit of stock options
exercised......................... 4,568 4,568
Treasury shares purchased........... (700) (17,697) (17,697)
------ -------- -------- ------- --------
BALANCE AT MARCH 31, 1999........... 67,956 $222,946 $219,863 $(6,872) $435,937
====== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED MARCH 31, 1999 AND 1998
A. ACCOUNTING POLICIES
STERIS Corporation (the "Company" or "STERIS") develops, manufactures, and
markets infection prevention, contamination prevention, microbial reduction, and
surgical support systems, products, services, and technologies for healthcare,
scientific, research, food, and industrial Customers throughout the world.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany accounts and transactions have
been eliminated upon consolidation. Certain reclassifications have been made to
the Company's prior year financial statements to agree with current year
classifications.
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of any long-lived
asset may warrant revision or that the remaining balance of the asset may not be
recoverable. When factors indicate that the long-lived assets should be
evaluated for possible impairment, the Company uses an estimate of the related
operation's cash flow from operations over the remaining life to determine
recoverability.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect the amounts reported in the
accompanying consolidated financial statements and notes. Actual results could
differ from these estimates.
The accounts of the Company's foreign subsidiaries are recorded in the
currency of the country in which they operate. All balance sheet accounts except
stockholders' equity are translated at current exchange rates, and revenue and
expense items are translated at rates of exchange prevailing during the year.
Gains and losses resulting from the translation of foreign currency financial
statements, which amounted to $6,872 and $6,534 as of March 31, 1999 and 1998,
respectively, represent other comprehensive income and are reflected in the
cumulative translation adjustment component of stockholders' equity.
BUSINESS COMBINATIONS
In late September 1998, the Company completed the acquisition of Hausted
Inc. for cash. Hausted is a leading provider of mobile systems for surgical and
diagnostic patient positioning and transport. The acquisition resulted in an
increase in goodwill of $41,977. During the third quarter fiscal 1999, the
Company acquired Detach AB. Detach AB, located in Sweden, possesses proprietary
technology and produces innovative systems for the Company's scientific and
industrial marketplace. These acquisitions were accounted for as purchase
transactions and did not have a material effect on the operations of the
Company.
In September 1997, STERIS purchased the common shares of Isomedix Inc. in
exchange for cash of $134,102. Isomedix is a leading provider of contract
sterilization and microbial reduction services, with gamma irradiation, ethylene
oxide, and electron-beam processing facilities across North America. The
acquisition was accounted for using the purchase method of accounting and
resulted in an increase in goodwill of $53,376. Following is an allocation of
the purchase price:
<TABLE>
<S> <C>
Current assets.............................................. $ 21,633
Property, plant, and equipment.............................. 94,546
Excess purchase price over net assets acquired.............. 53,376
Other assets................................................ 3,284
Current liabilities......................................... (27,917)
Long-term debt.............................................. (7,900)
Deferred income taxes....................................... (2,920)
--------
Total cost of acquisition................................... $134,102
========
</TABLE>
22
<PAGE> 23
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma results of operations assume the
acquisition occurred on April 1, 1996. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
the results of operations which actually would have resulted had the acquisition
occurred on the date indicated, or which may result in the future.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net revenues................................................ $740,926 $633,085
======== ========
Income (loss) from continuing operations.................... $ 65,393 $(30,873)
Income (loss) from discontinued operations.................. 200 (2,394)
-------- --------
Net income (loss)........................................... $ 65,593 $(33,267)
======== ========
Income (loss) from continuing operations per
share -- diluted.......................................... $ 0.93 $ (0.46)
======== ========
Net income (loss) per share -- diluted...................... $ 0.93 $ (0.49)
======== ========
</TABLE>
In July 1997, STERIS acquired the assets of Joslyn Sterilizer Corporation,
a designer and manufacturer of high quality, high performance sterile processing
systems based upon widely accepted steam and gas sterilization methodologies.
The acquisition was accounted for using the purchase method of accounting and
resulted in an increase in goodwill of $7,367.
In late December 1996, STERIS completed the acquisition of the assets of
the infection prevention and contamination prevention businesses of Calgon
Vestal Laboratories from Bristol-Myers Squibb Company. The acquisition expanded
STERIS's consumable product lines for surface cleaning and decontamination. The
acquisition was accounted for using the purchase method of accounting and
resulted in an increase in goodwill of $51,120.
During the second quarter of fiscal 1997, STERIS acquired Surgicot, Inc., a
privately held manufacturer and supplier of biological and chemical sterile
process monitors, sterilization wraps and pouches, and other consumable
infection prevention products for the health care and scientific markets. The
acquisition was accounted for using the purchase method of accounting and
resulted in an increase in goodwill of $3,795.
On May 13, 1996, STERIS merged with Amsco International, Inc. ("Amsco") in
a tax-free, stock-for-stock transaction (the "Amsco Merger"). The Amsco Merger
has been accounted using the pooling-of-interests method and resulted in the
issuance of approximately 30,400,000 STERIS Common Shares.
CASH EQUIVALENTS AND SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash and cash
equivalents consisted exclusively of interest-bearing savings accounts and U.S.
government securities.
Supplemental disclosure of cash flow information follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................ $ 8,942 $ 5,885 $ 6,130
Income taxes........................................ $20,042 $27,193 $17,286
</TABLE>
REVENUES
The Company's net revenues include revenues earned on product sales and
related after-sales, third-party service contracts and long-term construction
contracts. The Company recognizes product revenues upon shipment
23
<PAGE> 24
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to a location designated by the Customer. After-sales and third-party service
contract revenues are recognized upon completion of the work. Advance billings
for products or service work are recorded as deferred revenue until earned.
Revenue on long-term construction contracts is recognized on the
percentage-of-completion basis, using the cost-to-cost method. Accrued revenue
for contracts accounted for on the percentage-of-completion basis was
approximately one percent of fiscal 1999 net revenues.
The Company performs periodic credit evaluations of its Customers'
financial condition and generally does not require collateral on sales. The
Company principally sells to health care, scientific, and industrial
institutions and companies with no single Customer accounting for more than two
percent of sales during the year ended March 31, 1999.
B. INVENTORIES
Inventories are stated at cost, which did not exceed market. The Company
uses the last-in, first-out (LIFO) and first-in, first-out (FIFO) cost methods.
Inventories utilizing LIFO represent approximately 57% and 54% of the inventory
at March 31, 1999 and 1998, respectively. Inventory costs include material,
labor and overhead. If the FIFO method of inventory costing had been used
exclusively, inventories would have been $11,025 and $9,087 higher than those
reported at March 31, 1999 and 1998, respectively. Inventories were as follows:
<TABLE>
<CAPTION>
MARCH 31
------------------
1999 1998
------- -------
<S> <C> <C>
Raw material................................................ $36,878 $33,007
Work in process............................................. 19,585 17,666
Finished goods.............................................. 42,816 32,476
------- -------
$99,279 $83,149
======= =======
</TABLE>
C. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Property, plant, and equipment costs include capitalized labor,
overhead and interest costs. As a result of a capital improvements campaign to
add significant manufacturing assets at several locations, labor and overhead
capitalized in fiscal 1999 totaled $4,850 and interest capitalized totaled $961.
The Company provides for depreciation of the net carrying cost less
anticipated salvage value over the estimated remaining useful lives of property,
plant, and equipment, principally by using the straight-line method.
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. Depreciation expense was $27,367, $18,929 and $11,147 for the years
ended March 31, 1999, 1998 and 1997, respectively. Expenditures that increase
the value or productive capacity of assets, including information systems, are
capitalized. Capitalized internal costs associated with information systems
implementation amounted to $1,623 in fiscal 1999. Property, plant, and equipment
consisted of the following:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSET (ASSET LIVES)
Land and land improvements (12 years)....................... $ 18,300 $ 12,512
Buildings and leasehold improvements (7-50 yrs)............. 115,678 91,426
Machinery and equipment (3-15 years)........................ 195,191 149,473
Radioisotope (20 years)..................................... 43,217 36,247
-------- --------
TOTAL....................................................... 372,386 289,658
Less: accumulated depreciation.............................. 111,105 84,366
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, NET......................... $261,281 $205,292
======== ========
</TABLE>
24
<PAGE> 25
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense under all leases was approximately $12,366, $11,727 and
$10,784 for the years ended March 31, 1999, 1998 and 1997, respectively.
Operating leases relate principally to warehouse and office space, service
facilities, vehicles, equipment and communication systems. Future minimum annual
rentals payable under noncancelable leases in fiscal 2000, 2001, 2002, 2003, and
2004, and thereafter are $9,761, $8,268, $5,807, $3,326, $1,012, and $3,604,
respectively.
D. INTANGIBLE ASSETS
Costs incurred to obtain product technology rights, including patents, have
been capitalized and are being amortized over their estimated useful lives of
five to seventeen years using the straight-line method. The Company currently
provides for the amortization of intangible assets, including goodwill, over
lives ranging from 17-40 years. Intangible assets consisted of the following:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS (AMORTIZATION PERIOD)
Goodwill, net of accumulated amortization of $24,420 and
$19,542, respectively (35-40 years)....................... $196,831 $163,752
Patents, trademarks and other intangible assets, net of
accumulated amortization of $48,079 and $46,974,
respectively (17 years)................................... 11,420 10,220
-------- --------
TOTAL....................................................... $208,251 $173,972
======== ========
</TABLE>
E. FINANCIAL INSTRUMENTS
Long-term indebtedness was as follows:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Credit Facility............................................. $215,000 $145,000
Other debt.................................................. 8,700 10,079
-------- --------
Total....................................................... 223,700 155,079
Less current portion........................................ 2,200 2,200
-------- --------
Long-term portion........................................... $221,500 $152,879
======== ========
</TABLE>
On January 26, 1999, STERIS entered into a $400,000 Credit Facility, which
replaced the prior revolving Credit Facility. The new Credit Facility includes
an unsecured revolver of $250,000 which matures January 26, 2002. The remaining
$150,000 is an unsecured 364 day facility maturing on January 25, 2000, which
can be extended annually for 364 days. The new $400,000 Credit Facility may be
used for general corporate purposes and will bear interest at either KeyBank
National Association's prime rate or LIBOR rates plus .325 percent to .700
percent, which amounted to 5.4 percent and 6.0 percent at March 31, 1999 and
1998, respectively. The Credit Facility contains customary covenants which
include maintenance of certain financial ratios. As of March 31, 1999, $28,000
could be used for dividend distributions under these provisions.
Additional obligations consisted mainly of industrial development revenue
bonds which bear interest at a variable rate based on the bank/marketing agent's
demand note index. These bond agreements contain various covenants relating to
minimum capitalization, net worth, and working capital. At March 31, 1999,
outstanding obligations under the industrial development revenue bonds were
$7,100, with a weighted average interest rate of 3.2 percent.
Amounts payable for borrowings in fiscal 2000, 2001, 2002, 2003, 2004 and
thereafter are $2,200, $800, $215,700, $700, $700 and $3,600, respectively.
25
<PAGE> 26
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of March 31, 1999 and 1998, the Company was contingently liable in the
amount of $21,066 and $15,980, respectively, under standby letters of credit and
guarantees. Approximately $11,500 of the totals at March 31, 1999 and 1998
relate to letters of credit required as security under the Company's
self-insured risk retention policies. The remaining balance in each year relates
to performance bonds on long-term contracts.
The fair value of the Company's financial instruments, including long-term
indebtedness and cash, and cash equivalents that amounted to $23,680 and $17,172
as of March 31, 1999 and 1998, respectively, approximated their carrying values.
F. ACCRUED EXPENSES AND OTHER
Accrued expenses and other consisted of the following:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
Associate compensation...................................... $ 15,313 $ 18,082
Self insured retention...................................... 8,000 9,045
Taxes....................................................... 40,732 33,147
Warranty and product upgrade costs.......................... 5,490 13,646
Other....................................................... 37,971 52,065
-------- --------
TOTAL....................................................... $107,506 $125,985
======== ========
</TABLE>
G. INCOME TAXES
The Company records the effect of income taxes using the liability method.
Income (loss) from continuing operations before income taxes was as follows:
<TABLE>
<CAPTION>
MARCH 31
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
U.S. operations...................................... $112,889 $110,755 $ 2,995
Non-U.S. operations.................................. 14,307 (3,400) (7,857)
-------- -------- -------
$127,196 $107,355 $(4,862)
======== ======== =======
</TABLE>
The components of the provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current provision:
U.S. federal........................................ $23,899 $27,211 $34,385
U.S. state and local................................ 3,218 4,465 2,471
Non-U.S............................................. 3,176 2,742 1,061
------- ------- -------
Total current provision............................... 30,293 34,418 37,917
Deferred expense (benefit)............................ 12,049 7,441 (12,173)
------- ------- -------
Total provision for income taxes...................... $42,342 $41,859 $25,744
======= ======= =======
</TABLE>
26
<PAGE> 27
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision for income taxes can be reconciled to the tax computed
at the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
MARCH 31
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Tax computed at the U.S. federal statutory tax rate... $44,518 $37,574 $(1,702)
Reduction of income tax accruals...................... (6,000) 0 0
Merger and related costs for which no tax benefit was
provided............................................ 0 0 22,260
State and local taxes, net of federal income tax
benefit............................................. 2,092 2,902 1,606
Amortization of excess cost over net assets
acquired............................................ 629 530 831
Valuation allowance, net.............................. 0 0 1,646
Difference in non-U.S. tax rates...................... 1,046 532 500
All other, net........................................ 57 321 603
------- ------- -------
Total provision for income taxes...................... $42,342 $41,859 $25,744
======= ======= =======
</TABLE>
The $6,000 reduction in the income tax accruals represents a one-time
benefit related to fourth-quarter fiscal 1999 developments in the Company's
various tax planning strategies.
The significant components of the deferred tax assets and liabilities
recorded in the accompanying balance sheets at March 31, 1999 and 1998, were as
follows:
<TABLE>
<CAPTION>
MARCH 31
--------------------
1999 1998
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Post-retirement benefit accrual........................... $ 16,768 $ 17,029
Net operating loss carryforwards.......................... 1,929 1,339
Inventory................................................. 1,559 0
Accrued expenses and other................................ 21,247 33,789
-------- --------
Gross deferred tax assets................................... 41,503 52,157
Valuation allowance......................................... (1,929) (1,339)
-------- --------
Total deferred tax assets................................... $ 39,574 $ 50,818
======== ========
DEFERRED TAX LIABILITIES
Plant & equipment......................................... $(16,669) $(13,031)
Intangibles............................................... (3,236) (2,802)
Inventory................................................. 0 (538)
Other..................................................... (569) (5,128)
-------- --------
Total deferred tax (liabilities)............................ $(20,474) $(21,499)
======== ========
</TABLE>
For tax return purposes, certain subsidiaries, both U.S. and non-U.S., had
operating loss carryforwards of $5,041. Carryforwards of $1,099 have no
expiration dates and the balance expires at various dates from 2001 through
2011. The valuation allowance applies to net operating loss carryforwards that
may expire before the Company can utilize them. The net change in deferred tax
assets related to carryforwards and the valuation allowance for the year ended
March 31, 1999 was an increase of $590, primarily due to the increase in foreign
operating loss carryforwards.
At March 31, 1999, undistributed earnings of non-U.S. subsidiaries included
in consolidated retained earnings amounted to $32,721. These earnings are
indefinitely reinvested in non-U.S. operations. Accordingly, no provision has
been made for withholding taxes related to such earnings, nor is it practicable
to determine the amount of this liability.
27
<PAGE> 28
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. BENEFIT PLANS
The following table sets forth the funded status and amounts recognized in
the accompanying consolidated balance sheets for the Company's defined benefit
plans:
<TABLE>
<CAPTION>
OTHER POST-
PENSION BENEFITS RETIREMENT BENEFITS
------------------ --------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
BENEFIT OBLIGATION:
Balance at beginning of measurement period........ $41,638 $31,326 $ 47,704 $ 52,897
Service cost...................................... 1,081 989 399 399
Interest cost..................................... 2,768 2,701 3,187 3,529
Actuarial (gains) loss............................ 202 5,727 5,689 (3,209)
Benefits paid..................................... (2,616) (2,185) (3,394) (2,973)
Plan curtailment (gain)........................... (451) 0 0 (2,939)
Acquisition....................................... 0 3,080 0 0
------- ------- -------- --------
Balance at end of measurement period.............. 42,622 41,638 53,585 47,704
FAIR VALUE OF PLAN ASSETS:
Balance at beginning of measurement period........ 43,966 32,579 0 0
Actual return on plan assets...................... 4,044 9,672 0 0
Employer contribution............................. 103 427 3,394 2,973
Benefits paid..................................... (2,575) (2,185) (3,394) (2,973)
Acquisition....................................... 0 3,473 0 0
------- ------- -------- --------
Balance at end of measurement period.............. 45,538 43,966 0 0
------- ------- -------- --------
Funded status..................................... 2,916 2,328 (53,585) (47,704)
Unamortized transition amount..................... (1,180) (1,291) 0 0
Unamortized prior service cost.................... 3,052 2,687 (752) (949)
Unamortized (gain) loss........................... (6,814) (5,901) 5,725 0
------- ------- -------- --------
Prepaid (accrued) benefit cost.................... $(2,026) $(2,177) $(48,612) $(48,653)
======= ======= ======== ========
</TABLE>
Net periodic cost of the Company's defined benefit plans includes the
following components:
<TABLE>
<CAPTION>
OTHER POST-
PENSION BENEFITS RETIREMENT BENEFITS
--------------------------- ------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost.......................... $ 1,081 $ 989 $ 685 $ 399 $ 399 $ 99
Interest cost......................... 2,768 2,701 2,227 3,187 3,529 3,321
Expected return on plan assets........ (3,423) (2,963) (2,542) 0 0 0
Net amortization and deferral......... (576) 351 244 (233) 0 0
------- ------- ------- ------ ------ ------
Net periodic (benefit) cost........... $ (150) $ 1,078 $ 614 $3,353 $3,928 $3,420
======= ======= ======= ====== ====== ======
</TABLE>
A weighted average discount rate of 6.75%, 7.0%, and 7.75% was used in
determining the actuarial present value of the projected benefit obligations at
March 31, 1999, 1998 and 1997, respectively. The expected long-term rates of
return on assets at the respective measurement dates were 8.0% at March 31,
1999, 1998 and 1997. Unrecognized gains and losses and the initial net pension
asset are amortized over a fifteen-year period.
Future benefit costs for other post-retirement benefit plans were estimated
assuming medical costs would increase at approximately a 6.5% annual rate (6.5%
in fiscal 1998 and 7.25% in fiscal 1997), decreasing to approximately a 5%
annual growth rate ratably over a five-year period and then remaining at that
rate. A 1%
28
<PAGE> 29
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
change in the annual trend rate would have changed the accumulated
postretirement benefit obligation at March 31, 1999, by $5,000 and changed the
fiscal 1999 postretirement benefit expense by $400.
The Company's contributions to defined contribution plans were $3,231,
$2,936 and $2,979 for fiscal 1999, 1998 and 1997, respectively.
I. NON-RECURRING TRANSACTIONS
Non-recurring charges of $90,831 ($81,300 net of tax, or $1.22 per share)
were recorded in the 1997 fiscal first quarter for costs related to the Amsco
Merger. The charges include transaction costs of approximately $15,000 and other
non-recurring charges of approximately $75,800 ($66,300 net of tax). The
transaction costs are for legal, accounting, investment banking, and related
expenses. The other non-recurring charges are for (i) elimination of redundant
facilities and other assets ($27,000), (ii) satisfaction of Amsco executive
employment agreements and other Associate severance ($19,300), (iii) write-off
of goodwill related to Amsco's Finn-Aqua business which was impaired as a result
of the planned merger activities ($27,250), and (iv) other merger-related items.
Property write downs of $20,000 were recorded as part of the estimated cost of
eliminating redundant facilities based on fair value estimates. During fiscal
1997, STERIS closed a manufacturing and research facility in Apex, North
Carolina, Amsco's headquarters in Pittsburgh, Pennsylvania, as well as Customer
Service facilities in Dallas, Texas and Atlanta, Georgia. Operations of the
closed facilities were consolidated into existing STERIS facilities. Cash
payments related principally to transaction costs, executive employment
agreements and Associate severance. Associate severance costs incurred related
to closed facilities. The planned Associate severance was substantially complete
as of March 31, 1997. Such severance included approximately 150 individuals and
cost approximately $6,000.
During the second quarter of fiscal 1998, STERIS completed the sale of the
assets of its Management Services Division to General Electric Medical Systems,
a business of General Electric Company. The transaction did not result in a
material income statement effect. The transaction included tangible and
intangible assets relating to the business, and costs included impairment of
redundant assets and transaction related costs.
J. CONTINGENCIES
There are 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. STERIS presently
maintains product liability insurance coverage in amounts and with deductibles
that it believes are prudent.
K. BUSINESS SEGMENT INFORMATION
The Company operates in a single business segment. The following is
information about the Company's operations by geographic area:
<TABLE>
<CAPTION>
MARCH 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues
United States.................................... $649,990 $582,644 $487,679
Foreign.......................................... 147,621 137,012 100,173
-------- -------- --------
Consolidated net revenues.......................... $797,611 $719,656 $587,852
======== ======== ========
Long-lived assets
United States.................................... $245,447 $192,538 $ 90,265
Foreign.......................................... 18,901 15,773 14,901
-------- -------- --------
Consolidated long-lived assets..................... $264,348 $208,311 $105,166
======== ======== ========
</TABLE>
29
<PAGE> 30
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues are attributed to countries based on the location of subsidiaries.
Long-lived assets are those assets that are identified with the operations in
each geographic area. Revenues to a single Customer did not aggregate two
percent or more of total revenues. Revenues by principal market are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Health Care........................................ $597,146 $547,809 $449,166
Scientific and Industrial.......................... 200,465 171,847 138,686
-------- -------- --------
Total.............................................. $797,611 $719,656 $587,852
======== ======== ========
</TABLE>
L. COMMON SHARES
Basic earnings per share is based on average Common Shares outstanding.
Diluted earnings per share includes the dilutive effect of stock options.
Incremental Common Share equivalents are calculated for each measurement using
the treasury stock method. Common Share equivalents were antidilutive for the
fiscal year 1997 and accordingly were excluded from the computation of earnings
(loss) per Common Share for such period. 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>
YEARS ENDED MARCH 31
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average Common Shares outstanding -- basic...... 68,200 67,898 67,356
Dilutive effect of stock options......................... 2,392 2,326 0
------ ------ ------
Weighted average Common Shares and
equivalents -- diluted................................. 70,592 70,224 67,356
====== ====== ======
</TABLE>
On July 28, 1998, the Company announced a 2-for-1 stock split effected by
means of a 100% stock dividend on STERIS Common Shares. The stock split was
effective August 24, 1998 to shareholders of record on August 10, 1998. The net
income per common share and the weighted average number of common shares
outstanding as well as number of shares issued and outstanding for all periods
shown have been adjusted to reflect this stock split. During fiscal 1999, the
Company increased its authorized Common Shares from 100,000,000 to 300,000,000.
The Company has granted nonqualified stock options to certain Associates to
purchase the Company's Common Shares at the market price on the date of grant.
Stock options granted become exercisable to the extent of one-fourth of the
optioned shares for each full year of employment following the date of grant and
expire 10 years after the date of grant, or earlier if an option holder ceases
to be employed by the Company. The Company recognizes no compensation expense
when the exercise price equals the market price of the stock on the date of
grant.
Effective July 11, 1995, Amsco entered into an employment agreement with
its President and Chief Executive Officer (CEO) that included the granting of
1,380,000 nonqualified stock options at a discounted exercise price of $13.18.
The fair value of the options was $8.25 per share. 920,000 of the stock options
were performance-based and vested if Amsco's common stock achieved certain
market value criteria. During the second quarter of fiscal 1996, 460,000 of
these performance-based options vested because the average fair market value of
Amsco's common stock exceeded target prices. The remaining performance-based
options vested in fiscal 1997. The employment agreement referred to above also
included an award of 75,878 shares of restricted stock of Amsco. Based on the
terms of the award, this stock became completely vested during fiscal 1997. Upon
granting the stock options and awarding the restricted stock to the Amsco CEO,
Amsco recorded $4,363 of deferred compensation expense, which was amortized over
defined vesting schedules. The unamortized portion of the awards was $2,605 as
of March 31, 1996, and was recorded as a component of the special equity account
entitled "cumulative translation and other" on the accompanying consolidated
statements of shareholders' equity.
30
<PAGE> 31
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the second quarter of fiscal 1996, Amsco recorded an approximate $1,000
charge to selling, informational and administrative expense because of the
accelerated vesting of the 460,000 options discussed above. As a result of the
Amsco Merger, vesting accelerated for the remaining stock options and restricted
stock agreements. The related charges were recorded in fiscal 1997 as part of
the non-recurring charge in the accompanying consolidated statement of
operations.
Following is a summary of option share information.
<TABLE>
<CAPTION>
BEGINNING OF
YEAR GRANTED EXERCISED CANCELED END OF YEAR
------------ --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fiscal 1999
Option Shares.................. 6,228,596 1,162,604 (630,937) (187,159) 6,573,104
Average Price.................. $9.52 $30.40 $8.70 $16.96 $13.07
Fair Value..................... $14.24
Fiscal 1998
Option Shares.................. 5,922,772 1,196,404 (652,242) (238,338) 6,228,596
Average Price.................. $8.31 $19.06 $10.10 $25.47 $9.52
Fair Value..................... $9.14
Fiscal 1997
Option Shares.................. 7,702,936 1,450,576 (2,897,390) (333,350) 5,922,772
Average Price.................. $8.05 $13.69 $9.66 $14.02 $8.31
Fair Value..................... $6.62
</TABLE>
In relation to the exercise of 373,000 options during the 1997 fiscal year,
an executive officer of the Company has, as of March 31, 1999, an outstanding
balance of $2,501. The related full recourse note bears interest at 5.7% and is
payable on or before February 28, 2002.
Shares available for future grants were 4,130,447 at March 31, 1999. At
March 31, 1999, the range and weighted average per share exercise prices of
options outstanding and exercisable, and the weighted average remaining
contractual life (years), was as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE CONTRACT AVERAGE
OPTION EXERCISE LIFE OPTION EXERCISE
RANGE OF EXERCISE PRICES SHARES PRICE (YEARS) SHARES PRICE
- ------------------------ --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.48 -- $3.49..................... 1,371,115 $ 1.00 2.1 1,371,115 $ 1.00
$3.50 -- $9.99..................... 1,578,262 5.88 4.9 1,486,258 5.65
$10.00 -- $18.99................... 2,113,167 15.24 7.5 961,666 14.51
$19.00 -- $30.66................... 1,510,560 28.53 8.9 288,060 23.99
--------- ------ --- --------- ------
6,573,104 $13.07 6.1 4,107,099 $ 7.46
========= ====== === ========= ======
</TABLE>
At March 31, 1998, options with an average exercise price of $5.90 were
exercisable on 3,761,000 shares; at March 31, 1997, options with an average
exercise price of $6.63 were exercisable on 3,785,722 shares.
Had the compensation cost for the stock options granted in fiscal 1999,
1998 and 1997 been determined based on the value at the grant date consistent
with the Financial Accounting Standards Board's fair value method, the Company's
net earnings and earnings per share would have been reduced by $5,104 ($.07 per
share) in fiscal 1999, $3,197 ($.05 per share) in fiscal 1998, net loss and loss
per share would have been increased by $3,060 ($.05 per share) in fiscal 1997.
The effect on fiscal 1999, 1998 and 1997 net earnings (loss) may not be
representative of the effect on future years' net earnings amounts as the
compensation cost of each year's grant is recognized over the four-year vesting
period. Fair value was estimated at the date of grant using the Black-
31
<PAGE> 32
STERIS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scholes option pricing model and the following weighted-average assumptions for
fiscal 1999, 1998 and 1997: risk-free interest rate of 6.1%; dividend yield of
0%; expected volatility of 45%; and an expected option life of 5 years.
On January 30, 1997, the Company announced that its Board of Directors had
authorized the periodic repurchase of up to six million STERIS Common Shares in
the open market. As of March 1999, the Company had repurchased 2,200,100 STERIS
Common Shares.
Under a Shareholder Rights Agreement, one Common Share purchase Right is
attached to each outstanding Common Share. Each Right is exercisable only if a
person or group acquires 15% or more of the outstanding Common Shares. If the
Rights become exercisable, each Right will entitle the holder (other than the
acquiring person or group) to acquire one Common Share for an exercise price of
$.50 per share. The Rights will expire on November 7, 2006, unless redeemed
earlier at one half cent per Right.
M. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------
MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
FISCAL 1999
Net revenues................................ $226,917 $205,794 $191,125 $173,775
Gross profit................................ 101,239 96,534 89,504 81,314
Percentage of revenues...................... 45% 47% 47% 47%
NET INCOME.................................. $ 28,763 $ 22,975 $ 18,771 $ 14,345
======== ======== ======== ========
Earnings per share -- basic................. $ 0.42 $ 0.34 $ 0.27 $ 0.21
======== ======== ======== ========
Earnings per share -- diluted............... $ 0.41 $ 0.33 $ 0.27 $ 0.20
======== ======== ======== ========
FISCAL 1998
Net revenues................................ $204,500 $186,639 $173,383 $155,134
Gross profit................................ 95,489 84,048 78,187 66,834
Percentage of revenues...................... 47% 45% 45% 43%
NET INCOME.................................. $ 20,270 $ 18,170 $ 15,309 $ 11,747
======== ======== ======== ========
Earnings per share -- basic................. $ 0.30 $ 0.27 $ 0.23 $ 0.17
======== ======== ======== ========
Earnings per share -- diluted............... $ 0.29 $ 0.26 $ 0.22 $ 0.17
======== ======== ======== ========
</TABLE>
Refer to Note G regarding a fourth-quarter fiscal 1999 reduction in income
tax accruals.
32
<PAGE> 33
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- --------------------------------------- --------- ---------- -------- -------------- ----------
ADDITIONS
----------------------
CHARGES TO CHARGES BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCTS. DEDUCTIONS(1) PERIOD
- --------------------------------------- --------- ---------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts.... $6,780 $ 379 $500 $1,659 $6,000
====== ====== ==== ====== ======
Year ended March 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts.... $3,810 $3,561 $ 0 $ 591 $6,780
====== ====== ==== ====== ======
Year ended March 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts.... $1,947 $2,557 $ 0 $ 694 $3,810
====== ====== ==== ====== ======
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates herein by reference the information appearing
under the captions "Board of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission on or about June 22, 1999.
Executive officers of the Company serve for a term of one year from the
date of election to the next organizational meeting of the Board of Directors
and until their respective successors are elected and qualified, except in the
case of death, resignation, or removal. Information concerning executive
officers of the Company is contained in Part I of this report under the caption
"Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information appearing
under the caption "Compensation of Executive Officers" of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about June 22, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates herein by reference the information appearing
under the caption "Ownership of Voting Securities" of the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
about June 22, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates herein by reference the information appearing
under the caption "Compensation of Executive Officers" of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about June 22, 1999.
33
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
(a)(1) The following consolidated financial statements of STERIS
Corporation and subsidiaries are included in Item 8:
Consolidated Balance Sheets -- March 31, 1999 and 1998.
Consolidated Statements of Operations -- Years ended March 31, 1999,
1998 and 1997.
Consolidated Statements of Cash Flows -- Years ended March 31, 1999,
1998 and 1997.
Consolidated Statements of Shareholders' Equity -- Years ended March 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements -- March 31, 1999 and 1998.
(a)(2) The following consolidated financial statement schedule of STERIS
Corporation and subsidiaries is included in Item 8:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore, have been
omitted.
(a)(3) Exhibits
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1(a) 1992 Amended Articles of Incorporation of STERIS
Corporation, as amended on May 14, 1996 (filed as Exhibit
4.2 to the Registration Statement on Form S-3 filed June 21,
1996, and incorporated herein by reference).
3.1(b) Amendments to the 1992 Amended Articles of Incorporation of
STERIS Corporation on November 6, 1996 and August 6, 1998.
3.2 1992 Amended Regulations of STERIS Corporation. (filed as
Exhibit 3.2 to Form 10-K filed for the fiscal year ended
March 31, 1998, and incorporated herein by reference).
4.1 Specimen Form of Common Stock Certificate.
4.2 Amended and Restated Rights Agreement, dated as of January
21, 1999, between STERIS Corporation and Harris Trust and
Savings Bank, Rights Agent (filed as Exhibit 4.2 to the
Registration Statement on Form 8-A filed April 16, 1999, and
incorporated herein by reference).
10.1 Amended Non-Qualified Stock Option Plan (filed as Exhibit
10.4 to Amendment No. 1 to the Registration Statement on
Form S-1 filed April 23, 1992, and incorporated herein by
reference).
10.2 STERIS Corporation 1994 Equity Compensation Plan (filed as
Exhibit 99 to the Registration Statement on Form S-8 filed
April 21, 1995, and incorporated herein by reference).
10.3 STERIS Corporation 1994 Nonemployee Directors Equity
Compensation Plan (filed as Exhibit 10.3 to Form 10-K filed
for the fiscal year ended March 31, 1997, and incorporated
herein by reference). (A management contract or compensatory
plan or arrangement required to be filed as an exhibit
hereto).
10.4 Amsco International, Inc. Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Registration Statement of
Amsco International, Inc. on Form S-8, Registration No.
33-79566, filed on June 2, 1994).
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.5 Form of grant of Incentive Stock Option under Amsco
International, Inc. Stock Option Plan (filed as Exhibit 10.6
to Form 10-K filed for the fiscal year ended March 31, 1997,
and incorporated herein by reference).
10.6 Form of grant of Non-Qualified Stock Option under the Amsco
International, Inc. Stock Option Plan (filed as Exhibit 10.7
to Form 10-K filed for the fiscal year ended March 31, 1997,
and incorporated herein by reference).
10.7 STERIS Corporation 1997 Stock Option Plan (filed as Exhibit
10.14 to Form 10-K filed for the fiscal year ended March 31,
1998, and incorporated herein by reference).
10.8 STERIS Corporation 1998 Long-Term Incentive Stock Plan.
10.9 Credit Agreement, dated January 26, 1999, among STERIS
Corporation, various financial institutions and KeyBank
National Association, as Agent (filed as Exhibit 10.1 to
Form 10-Q filed for the quarter ended December 31, 1998, and
incorporated herein by reference).
10.10 Management Incentive Compensation Plan FY 1999.
10.11 Senior Executive Management Incentive Compensation Plan.
10.12 Promissory Note (filed as Exhibit 10.12 to Form 10-K filed
for the fiscal year ended March 31, 1998, and incorporated
herein by reference).
10.13 The Agreement and Plan of Merger, dated August 12, 1997, by
and among Isomedix Inc., STERIS Corporation, and STERIS
Acquisition Corporation (filed as Exhibit (c)(1) to the
Tender Offer Statement on Schedule 14D-1 filed by STERIS
Corporation and STERIS Acquisition Corporation on August 18,
1997, and incorporated herein by reference).
21.1 Subsidiaries of STERIS Corporation.
23.1 Consent of Independent Auditors.
24 Power of Attorney.
27 Financial Data Schedules.
</TABLE>
STERIS or its subsidiaries are parties to several indentures relating to
long-term debt instruments, which, individually or in the aggregate, do not
exceed 10% of the total assets of STERIS and its subsidiaries on a consolidated
basis. STERIS will furnish a copy of any such indenture to the Securities and
Exchange Commission upon request.
(b) Reports on Form 8-K
--------------------------
No Current Reports on Form 8-K were filed by STERIS during the fourth
quarter of fiscal 1999.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Sections 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, on the date indicated.
STERIS Corporation
(Registrant)
/s/ JANET L. KAPOSTASY
--------------------------------------
Janet L. Kapostasy
Controller and Principal Accounting
Officer
June 18, 1999
/s/ MARK L. FAGERHOLM
--------------------------------------
Mark L. Fagerholm
Vice President Finance and
Principal Financial Officer
June 18, 1999
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 date indicated.
BILL R. SANFORD, Chairman of the Board of Directors, President, and Chief
Executive Officer (Principal Executive Officer); JANET L. KAPOSTASY, Controller
(Principal Accounting Officer); MARK L. FAGERHOLM, Vice President Finance
(Principal Financial Officer); RAYMOND A. LANCASTER, Director; THOMAS J.
MAGULSKI, Director; J.B. RICHEY, Director; JERRY E. ROBERTSON, Director; FRANK
E. SAMUEL, JR., Director; and LOYAL W. WILSON, Director.
STERIS Corporation
(Registrant)
/s/ MICHAEL A. KERESMAN, III
--------------------------------------
Michael A. Keresman, III
Attorney-in-Fact
June 18, 1999
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1(a) 1992 Amended Articles of Incorporation of STERIS
Corporation, as amended on May 14, 1996 (filed as Exhibit
4.2 to the Registration Statement on Form S-3 filed June 21,
1996, and incorporated herein by reference).
3.1(b) Amendments to the 1992 Amended Articles of Incorporation of
STERIS Corporation on November 6, 1996 and August 6, 1998.
3.2 1992 Amended Regulations of STERIS Corporation. (filed as
Exhibit 3.2 to Form 10-K filed for the fiscal year ended
March 31, 1998, and incorporated herein by reference).
4.1 Specimen Form of Common Stock Certificate.
4.2 Amended and Restated Rights Agreement, dated as of January
21, 1999, between STERIS Corporation and Harris Trust and
Savings Bank, Rights Agent (filed as Exhibit 4.2 to the
Registration Statement on Form 8-A filed April 16, 1999, and
incorporated herein by reference).
10.1 Amended Non-Qualified Stock Option Plan (filed as Exhibit
10.4 to Amendment No. 1 to the Registration Statement on
Form S-1 filed April 23, 1992, and incorporated herein by
reference).
10.2 STERIS Corporation 1994 Equity Compensation Plan (filed as
Exhibit 99 to the Registration Statement on Form S-8 filed
April 21, 1995, and incorporated herein by reference).
10.3 STERIS Corporation 1994 Nonemployee Directors Equity
Compensation Plan (filed as Exhibit 10.3 to Form 10-K filed
for the fiscal year ended March 31, 1997, and incorporated
herein by reference). (A management contract or compensatory
plan or arrangement required to be filed as an exhibit
hereto).
10.4 Amsco International, Inc. Stock Option Plan (incorporated by
reference to Exhibit 4.1 to the Registration Statement of
Amsco International, Inc. on Form S-8, Registration No.
33-79566, filed on June 2, 1994).
10.5 Form of grant of Incentive Stock Option under Amsco
International, Inc. Stock Option Plan (filed as Exhibit 10.6
to Form 10-K filed for the fiscal year ended March 31, 1997,
and incorporated herein by reference).
10.6 Form of grant of Non-Qualified Stock Option under the Amsco
International, Inc. Stock Option Plan (filed as Exhibit 10.7
to Form 10-K filed for the fiscal year ended March 31, 1997,
and incorporated herein by reference).
10.7 STERIS Corporation 1997 Stock Option Plan (filed as Exhibit
10.14 to Form 10-K filed for the fiscal year ended March 31,
1998, and incorporated herein by reference).
10.8 STERIS Corporation 1998 Long-Term Incentive Stock Plan.
10.9 Credit Agreement, dated January 26, 1999, among STERIS
Corporation, various financial institutions and KeyBank
National Association, as Agent (filed as Exhibit 10.1 to
Form 10-Q filed for the quarter ended December 31, 1998, and
incorporated herein by reference).
10.10 Management Incentive Compensation Plan FY 1999.
10.11 Senior Executive Management Incentive Compensation Plan.
10.12 Promissory Note (filed as Exhibit 10.12 to Form 10-K filed
for the fiscal year ended March 31, 1998, and incorporated
herein by reference).
10.13 The Agreement and Plan of Merger, dated August 12, 1997, by
and among Isomedix Inc., STERIS Corporation, and STERIS
Acquisition Corporation (filed as Exhibit (c)(1) to the
Tender Offer Statement on Schedule 14D-1 filed by STERIS
Corporation and STERIS Acquisition Corporation on August 18,
1997, and incorporated herein by reference).
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
21.1 Subsidiaries of STERIS Corporation.
23.1 Consent of Independent Auditors.
24 Power of Attorney.
27 Financial Data Schedules.
</TABLE>
STERIS or its subsidiaries are parties to several indentures relating to
long-term debt instruments, which, individually or in the aggregate, do not
exceed 10% of the total assets of STERIS and its subsidiaries on a consolidated
basis. STERIS will furnish a copy of any such indenture to the Securities and
Exchange Commission upon request.
38
<PAGE> 1
EXHIBIT 3.1(b)
Amendments to the 1992 Amended Articles of Incorporation of STERIS Corporation
on November 6, 1996 and August 6, 1998.
On November 6, 1996, Article Fourth of STERIS Corporation's 1992 Amended
Articles of Incorporation was amended to add a new Section 8, as follows:
SECTION 8. Series A Preferred Shares.
(a) Of the 3,000,000 Serial Preferred Shares without par value,
1,000,000 shall be Series A Preferred Shares. Series A Preferred Shares may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Shares. The express terms of Series A Preferred Shares, in
addition to those set forth in Sections 1 through 7 of this Article Fourth,
shall be as hereinafter set forth in this Section 8.
(b) The holders of Series A Preferred Shares shall be entitled to
receive, out of any funds legally available and when and as declared by the
Board of Directors, dividends and other distributions of the same kind as, but
at a rate equal to one hundred (100) times the amount per share of, the
dividends or other distributions received by the holders of Common Shares,
subject to the provision for adjustment hereinafter set forth. The record date
and payment date of the dividends and other distributions payable to the holders
of the Series A Preferred Shares shall be the same as the record date and the
payment date of the dividends and other distributions payable to the holders of
the Common Shares. Dividends on the Series A Preferred Shares shall not accrue
or be cumulative. In the event the Corporation at any time declares or pays any
dividend on the Common Shares payable in Common Shares, or effects a subdivision
or combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of a dividend in Common Shares)
into a greater or lesser number of Common Shares, then in each such case the
amount of dividends payable to holders of the Series A Preferred Shares under
this paragraph (b) shall be adjusted by multiplying the amount to which such
holders were entitled immediately prior to such event by a fraction, the
numerator of which is the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of Common Shares
outstanding immediately prior to such event.
(c) The outstanding Series A Preferred Shares shall not be redeemable.
(d) The holders of Series A Preferred Shares shall, in case of
liquidation, dissolution, or winding up of the affairs of the Corporation, be
entitled to receive in full, out of the assets of the Corporation, including its
capital, an amount equal to one hundred (100) times the amount to be distributed
per share to holders of Common Shares, subject to the provision for adjustment
hereinafter set forth. In the event the Corporation at any time declares or pays
any dividend on the Common Shares payable in Common Shares, or effects a
subdivision or combination or consolidation of the outstanding Common Shares (by
reclassification or otherwise than by payment of a dividend in Common Shares)
into a greater or lesser number of
<PAGE> 2
Common Shares, then in each such case the amount to be distributed to holders of
the Series A Preferred Shares under this paragraph (d) shall be adjusted by
multiplying amount to which such holders were entitled immediately prior to such
event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which is the
number of Common Shares outstanding immediately prior to such event. Except as
set forth above, the holders of Series A Preferred Shares shall have the same
rights and shall be treated in the same manner with respect to any liquidation,
dissolution or winding up as holders of Common Shares.
(e) In the event that the Corporation enters into any consolidation,
merger, combination or other stock transaction in which the Common Shares are
exchanged for or changed into other stock (and other securities and assets, if
any), then in any such case each Series A Preferred Share shall at the same time
be similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to one hundred (100) times
the aggregate amount of stock (and other securities and assets, if any), as the
case may be, into which or for which each Common Share is changed or exchanged.
In the event the Corporation at any time declares or pays any dividend on the
Common Shares payable in Common Shares, or effects a subdivision or combination
or consolidation of the outstanding Common Shares (by reclassification or
otherwise than by payment of a dividend in Common Shares) into a greater or
lesser number of Common Shares, then in each such case the amount to be
distributed to holders of the Series A Preferred Shares under this paragraph (e)
shall be adjusted by multiplying amount to which such holders were entitled
immediately prior to such event by a fraction, the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares outstanding immediately
prior to such event.
On August 6, 1998, the first paragraph of Article Fourth of STERIS Corporation's
1992 Amended Articles of Incorporation was amended to read as follows:
FOURTH. The authorized number of shares of the Corporation is 303
million of which 300 million shall be Common Shares, without par value
(the "Common Shares"), and 3 million shall be Serial Preferred Shares,
without par value ( the "Serial Preferred Shares").
<PAGE> 1
EXHIBIT 4.1 Specimen form of Common Stock Certificate.
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE WHEN AVAILABLE
STERIS
NUMBER ("logo") SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF OHIO
STERIS CORPORATION
This certificate is transferable in Chicago, IL or New York, NY
CUSIP 859152 10 0
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, WITHOUT PAR VALUE, OF
STERIS CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent of the Corporation and registered by the Registrar.
WITNESS the facsimile signatures of the duly authorized officers of the
Corporation.
Dated
SECRETARY PRESIDENT
Countersigned and Registered:
HARRIS TRUST AND SAVINGS BANK
Transfer Agent and Registrar,
BY
Authorized Signature
AMERICAN BANK NOTE COMPANY.
<PAGE> 2
STERIS CORPORATION
As required by Ohio law, the Corporation will mail to the record holder
of this certificate, without charge, within five (5) days after receipt of
written request therefor addressed to the Secretary of the Corporation at its
principal place of business, a copy of the express terms of the shares
represented by this certificate and of all other classes and series of shares
which the Corporation is authorized to issue.
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
---------------------- -----------------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as tenants
in common -----------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OF THE SHARES
- ------------------------------------------------------------------
REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ATTORNEY
----------------------------------------------------------------
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED 19
----------------- --
--------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN STERIS CORPORATION AND
HARRIS TRUST AND SAVINGS BANK, AS SUCCESSOR RIGHTS AGENT, DATED AS OF OCTOBER
24, 1996 (THE "RIGHTS AGREEMENT"), AS SUCH RIGHTS AGREEMENT MAY BE AMENDED FROM
TIME TO TIME THEREAFTER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICES OF STERIS CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND
WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. STERIS CORPORATION WILL MAIL TO
THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT (AS IN EFFECT ON
THE DATE OF MAILING) WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST
THEREFOR. UNDER CERTAIN CIRCUMSTANCES, RIGHTS WHICH ARE OR WERE BENEFICIALLY
OWNED BY ACQUIRING PERSONS OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID.
<PAGE> 1
EXHIBIT 10.8
STERIS CORPORATION
1998 LONG-TERM INCENTIVE STOCK PLAN
1. Purpose. The STERIS Corporation 1998 Long-Term Incentive Stock Plan
is intended to promote the interests of STERIS Corporation and its shareholders
by enabling the Company and its Subsidiaries to attract and retain key Employees
and by stimulating the interest of those Employees in the development and
financial success of the Company. To achieve these purposes, the Company may
grant Awards of Options, Stock Appreciation Rights, Restricted Shares, and
Performance Shares to key Employees selected by the Compensation Committee, all
in accordance with the terms and conditions set forth in the Plan. Capitalized
terms used in the Plan have the meanings ascribed to them in Section 25, the
last section hereof.
2. Shares Subject to the Plan. The number of Common Shares that may be
issued pursuant to the Plan shall be subject to the overall aggregate limit set
forth in Section 2.1 and the specific further limits set forth in Section 2.2,
in each case subject to adjustment under Section 12. Common Shares issued
pursuant to the Plan may be authorized and unissued Common Shares, treasury
Common Shares, or Common Shares acquired on the open market specifically for
distribution under the Plan, as the Board of Directors may from time to time
determine. If any Award for any reason expires or is terminated, in whole or in
part, without the receipt by an Employee of Common Shares (or the equivalent
thereof in cash or other property) or if Common Shares issued as Restricted
Shares are reacquired by the Company as a result of rights reserved in the Award
Instrument pursuant to which the Restricted Shares were granted, the Common
Shares subject to that part of the Award that has so expired or terminated or
the Restricted Shares that have been reacquired by the Company, as the case may
be, shall again be available for the future grant of Awards under the Plan.
2.1 Overall Aggregate Limit. The aggregate number of Common Shares that
may be issued pursuant to Awards granted under the Plan shall be 1,650,000
Common Shares.
2.2 Specific Further Limits. In addition to the overall aggregate limit
set forth in Section 2.1, the following specific limits shall apply to Awards
made pursuant to the Plan:
(a) Restricted Share Limit. The aggregate number of Common Shares that
may be issued as Restricted Shares pursuant to Awards made under the
Plan shall be 300,000 Common Shares.
(b) Incentive Stock Option Limit. The maximum number of Common Shares
that may be issued under the Plan pursuant to Awards of Incentive Stock
Options made under the Plan shall be 1,650,000 Common Shares.
(c) Per Employee Limit. The maximum number of Common Shares that may be
subject to Awards granted under the Plan to any Employee during any
calendar year shall be 500,000 Common Shares.
3. Eligibility. Awards may be granted to officers and to other key
Employees selected by the Committee in its sole discretion. The granting of any
Award to an Employee shall not entitle that Employee to, nor disqualify that
Employee from, participation in any other grant of an Award.
<PAGE> 2
4. Administration. The Plan shall be administered by the Committee. No
Award may be made under the Plan to any member or alternate member of the
Committee. The Committee shall have authority, subject to the terms of the Plan,
(a) to determine the Employees who are eligible to participate in the Plan, the
type, size, and terms of Awards to be granted to any Employee, the restrictions,
conditions, and contingencies to be applicable in the case of specific Awards,
the time or times at which Awards shall be exercisable or at which restrictions,
conditions, and contingencies shall lapse, and the terms and provisions of the
instruments by which Awards shall be evidenced, (b) to establish and administer
Performance Goals and any other restrictions, conditions, and contingencies on
Awards in addition to those prescribed by the Plan and to certify whether
particular Performance Goals have been met, (c) to interpret the Plan, and (d)
to make all determinations necessary for the administration of the Plan. The
construction and interpretation by the Committee of any provision of the Plan or
any Award Instrument delivered pursuant to the Plan and any determination by the
Committee pursuant to any provision of the Plan or any Award Instrument shall be
final and conclusive. No member or alternate member of the Committee shall be
liable for any such action or determination made in good faith. The Committee
may act only by a majority of its members. Any determination of the Committee
may be made, without a meeting, by a writing or writings signed by all of the
members of the Committee. In addition, the Committee may authorize any one or
more of their number or any officer of the Company to execute and deliver
documents on behalf of the Committee and the Committee may delegate to one or
more employees, agents, or officers of the Company, or to one or more third
party consultants, accountants, lawyers, or other advisors, such ministerial
duties related to the operation of the Plan as it may deem appropriate.
5. Stock Options.
5.1 Type and Date of Grant of Options.
(a) The Award Instrument pursuant to which any Incentive Stock Option
is granted shall specify that the Option granted thereby shall be
treated as an Incentive Stock Option. The Award Instrument pursuant to
which any Nonqualified Option is granted shall specify that the Option
granted thereby shall not be treated as an Incentive Stock Option.
(b) The day on which the Committee authorizes the grant of an Incentive
Stock Option shall be the date on which that Option is granted. No
Incentive Stock Option may be granted on any date after the tenth
anniversary of the date of adoption of the Plan.
(c) The day on which the Committee authorizes the grant of a
Nonqualified Option shall be considered the date on which that Option
is granted, unless the Committee specifies a later date.
5.2 Exercise Price. The Exercise Price under any Option shall be not
less than the Fair Market Value of the Common Shares subject to the Option on
the date the Option is granted.
5.3 Option Expiration Date. The Option Expiration Date under any
Incentive Stock Option shall not be later than ten years from the date on which
the Option is granted. The Option Expiration Date under any Nonqualified Option
shall not be later than ten years and one month from the date on which the
Option is granted.
<PAGE> 3
5.4 Exercise of Options.
(a) Except as otherwise provided in Section 9, an Option may be
exercised only while the Employee to whom the Option was granted is in
the employ of the Company or of a Subsidiary. Once any portion of an
Option becomes exercisable, whether by lapse of time or upon
satisfaction of any other restriction, condition, or contingency that
may have been established by the Committee and contained in the Award
Instrument, that portion shall remain exercisable until expiration or
termination of the Option. An Employee to whom an Option is granted may
exercise the Option from time to time, in whole or in part, up to the
total number of Common Shares with respect to which the Option is then
exercisable, except that no fraction of a Common Share may be purchased
upon the exercise of any Option.
(b) An Employee electing to exercise an Option shall deliver to the
Company (i) the Exercise Price payable in accordance with Section 5.5
and (ii) written notice of the election that states the number of whole
Common Shares with respect to which the Employee is exercising the
Option.
5.5 Payment For Common Shares. Upon exercise of an Option by an
Employee, the Exercise Price shall be payable by the Employee in cash or in such
other form of consideration as the Committee determines may be accepted,
including, without limitation, securities or other property, or any combination
of cash, securities, or other property, or by delivery by the Employee (with the
written notice of election to exercise) of irrevocable instructions to a broker
registered under the 1934 Act to promptly deliver to the Company the amount of
sale or loan proceeds to pay the Exercise Price. The Committee, in its sole
discretion, may grant to an Employee the right to transfer Common Shares
acquired upon the exercise of a part of an Option in payment of the Exercise
Price payable upon immediate exercise of a further part of the Option.
6. Stock Appreciation Rights.
6.1 Grant of SARs. An SAR may be granted only in connection with an
Option. An SAR granted in connection with an Incentive Stock Option may be
granted only when the Incentive Stock Option is granted. An SAR granted in
connection with a Nonqualified Option may be granted either when the related
Nonqualified Option is granted or at any time thereafter, including, in the case
of any Nonqualified Option resulting from the conversion of an Incentive Stock
Option to a Nonqualified Stock Option, simultaneously with or after the
conversion.
6.2 Exercise of SARs.
(a) An Employee electing to exercise an SAR shall deliver written
notice to the Company of the election identifying the SAR and the
related Option with respect to which the SAR was granted to the
Employee, and specifying the number of whole Common Shares with respect
to which the Employee is exercising the SAR. Upon exercise of the SAR,
the related Option shall be deemed to be surrendered to the extent that
the SAR is exercised.
(b) SARs may be exercised only (i) on a date when the Fair Market Value
of a Common Share exceeds the Exercise Price stated in the Option
related to that SAR, (ii) at a time and to the same extent as the
related Option is exercisable, (iii) by surrender to the Company,
unexercised, of the related Option or any applicable portion thereof,
and (iv) in
<PAGE> 4
compliance with any restrictions that may be set forth in the Award
Instrument pursuant to which the SAR was granted.
6.3 Payment for SARs. The amount payable upon exercise of an SAR may be
paid by the Company in cash, or, if the Committee shall determine in its sole
discretion, in whole Common Shares (taken at their Fair Market Value at the time
of exercise of the SAR) or in a combination of cash and whole Common Shares;
provided, however, that in no event shall the total number of Common Shares that
may be paid to an Employee pursuant to the exercise of an SAR exceed the total
number of Common Shares subject to the related Option.
6.4 Termination, Amendment, or Suspension of SARs. An SAR shall
terminate and may no longer be exercised upon the first to occur of (a) exercise
or termination of the related Option, or (b) any termination date specified by
the Committee at the time of grant of the SAR. In addition, the Committee may,
in its sole discretion at any time before the occurrence of a Change of Control,
amend, suspend, or terminate any SAR theretofore granted under the Plan without
the holder's consent; provided that, in the case of amendment, no provision of
the SAR, as amended, shall be in conflict with any provision of the Plan. The
amendment, suspension, or termination of any SAR by the Committee as described
in the immediately preceding sentence shall not affect the holder's rights in
any related Option.
7. Restricted Shares.
7.1 Additional Conditions on Restricted Shares. In addition to the
restrictions on disposition of Restricted Shares during the Restriction Period
and the requirement to offer Restricted Shares to the Company if the Employee's
employment terminates during the Restriction Period, the Committee may provide
in the Award Instrument with respect to any Award of Restricted Shares other
restrictions, conditions, and contingencies, which other restrictions,
conditions, and contingencies, if any, may relate to, in addition to such other
matters as the Committee may deem appropriate, the Employee's personal
performance, corporate performance, or the performance of any subunit of the
Company or any Subsidiary, in each case measured in such manner as may be
specified by the Committee. The Committee may impose different restrictions,
conditions, and contingencies on separate Awards of Restricted Shares granted to
different Employees, whether at the same or different times, and on separate
Awards of Restricted Shares granted to the same Employee, whether at the same or
different times. The Committee may specify a single Restriction Period for all
of the Restricted Shares subject to any particular Award Instrument or may
specify multiple Restriction Periods so that the restrictions with respect to
the Restricted Shares subject to the Award will expire in stages according to a
schedule specified by the Committee and set forth in the Award Instrument.
7.2 Payment for Restricted Shares. Each Employee to whom an Award of
Restricted Shares is made shall pay the Acquisition Price with respect to that
Restricted Shares to the Company not later than 30 days after the delivery to
the Employee of the Award Instrument with respect to that Restricted Shares. If
any Employee fails to pay the Acquisition Price with respect to any Award of
Restricted Shares within that 30-day period, the Employee's rights under that
Award shall be forfeited.
7.3 Rights as a Shareholder. Upon payment by an Employee in full of the
Acquisition Price for Restricted Shares under an Award, the Employee shall have
all of the rights of a shareholder with respect to the Restricted Shares,
including voting and dividend rights, subject only to such restrictions and
requirements referred to in Section 7.1 as may be incorporated in the
<PAGE> 5
Award Instrument with respect to that Restricted Shares.
7.4 Lapse of Restrictions following Unaccepted Offer of Resale. If (a)
an Employee or an Employee's Representative becomes required, under the terms of
the Plan or any provision of an Award Instrument, to offer for resale to the
Company at the Acquisition Price Restricted Shares held by the Employee at the
Employment Termination Date and the Employee makes the required offer to the
Company in writing, and (b) the Company fails to repurchase those Restricted
Shares at the Acquisition Price within 60 days of the date on which the Company
receives that written offer, all restrictions on those Restricted Shares shall
lapse and neither the Employee nor the Employee's Representative shall
thereafter be required to offer to resell those Restricted Shares to the
Company.
8. Performance Shares. The Committee may grant Awards of Performance
Shares that are intended to qualify as "performance based" within the meaning of
Code Section 162(m)(4)(C) ("Section 162(m) Performance Awards") and the
Committee may also grant Awards of Performance Shares that are not intended to
so qualify.
8.1 Discretion of Committee with Respect to Performance Shares. Except
as may be otherwise provided below in this Section 8 with respect to Section
162(m) Performance Awards, the Committee shall have full discretion to select
the Employees to whom Awards of Performance Shares are made, the number of
Performance Shares to be granted to any Employee so selected, the kind and level
of the Performance Goals and whether those Performance Goals are to apply to the
Company, a Subsidiary, or any one or more subunits of the Company or of any
Subsidiary, and the dates on which each Performance Period shall begin and end,
and to determine the form and provisions of the Award Instrument to be used in
connection with any Award of Performance Shares.
8.2 Conditions Applicable to Section 162(m) Performance Awards. The
provisions of this Section 8.2 shall apply to all Section 162(m) Performance
Awards. The Committee shall (i) designate the Section 162(m) Performance Awards
as being intended to qualify as "performance based" within the meaning of Code
Section 162(m)(4)(C), (ii) select the Employees to whom Section 162(m)
Performance Awards are to be granted, and (iii) establish in writing the
applicable Performance Goals and all related terms no later that 90 days after
the commencement of the relevant Performance Period (or such earlier or later
date as may be the applicable deadline for payments with respect to the Section
162(m) Performance Shares to qualify as "performance based" within the meaning
of Code Section 162(m)(4)(C)). The Committee shall establish in writing the
Performance Goals for each Award Period which shall be based on any of the
following performance criteria, either alone or in any combination, and applying
to the Company, to a Subsidiary, or to any one or more subunits of the Company
or of any Subsidiary, and which shall include or exclude discontinued operations
and acquisition expenses (e.g., pooling of interests), as the Committee may
determine: return on net assets, return on capital employed, economic value
added, level of sales, earnings per share, income before income taxes and
cumulative effect of accounting changes, net income, return on equity, total
shareholder return, market valuation, cash flow, and completion of acquisitions.
The foregoing criteria shall have any reasonable definitions that the Committee
may specify at the time the Performance Goal is established, which may include
or exclude any or all of the following items, as the Committee may specify:
extraordinary, unusual, or nonrecurring items; effects of accounting changes;
effects of currency fluctuations; effects of financing activities; expenses for
restructuring or productivity initiatives; nonoperating items; acquisition
expenses; and effects of divestitures. Any such performance criterion or
combination of such criteria may apply to an
<PAGE> 6
Employee's award opportunity in its entirety or to any designated portion or
portions of the opportunity, as the Committee may specify.
8.3 No Discretion to Increase Payments Under Section 162(m) Performance
Awards. The Committee shall not have any discretion to increase the amount to be
paid to an Employee pursuant to any Section 162(m) Performance Award upon
attainment of the applicable Performance Goal. However, the Committee may
reserve to itself the right to exercise negative discretion with respect to any
Section 162(m) Performance Award (i.e., to reduce or eliminate the amount
payable pursuant to the Section 162(m) Performance Award) within the meaning of
Treasury Regulation Section 1.162-27(e)(2)(iii)(A).
8.4 Performance Shares Earned Upon Attainment of Performance Goals. The
Committee may establish one or more formulas to be applied against the
Performance Goals to determine whether all, some portion but less than all, or
none of the Performance Shares granted with respect to a Performance Period are
earned pursuant to any Award of Performance Shares. An Employee will be entitled
to receive payments with respect to any Performance Shares only to the extent
that those Performance Shares are earned under one or more such formulas and no
payments shall be made under any Section 162(m) Performance Award unless and
until the Committee has certified the extent to which the Performance Goals have
been attained.
8.5 Unless otherwise provided in the relevant Award Instrument or as
permitted by the last sentence of this Section 8.5, an Employee must be employed
by the Company or a Subsidiary on the last day of a Performance Period to be
entitled to payment for any Performance Shares. The Committee may, in its sole
discretion, provide for a partial or full payment of a Performance Award
following termination of an Employee's employment before the end of a
Performance Period, which payment shall be made at the same time as the payment
would have been made if the Employee's employment had continued through the end
of the Performance Period, except that the Committee shall not exercise this
discretion in any manner that would cause any Section 162(m) Performance Award
to fail to qualify as "performance based" within the meaning of Code Section
162(m)(4)(C).
8.6 Payment for Performance Shares. The Company shall pay each Employee
who is entitled to payment for Performance Shares earned with respect to any
Performance Period an amount for those Performance Shares (a) in cash (based
upon the per share Fair Market Value of Common Shares on the last day of the
Performance Period), (b) in Common Shares (one Common Share for each Performance
Share earned), (c) in Restricted Shares (one Common Share of Restricted Shares
for each Performance Share earned), or (d) any combination of the foregoing, in
such proportions as the Committee may determine. Restricted Shares issued by the
Company in payment of Performance Shares shall be subject to the provisions of
Section 7 to the extent provided by the Committee.
8.7 Dividends. The Committee may, in its sole discretion, at the time a
Performance Shares are granted, provide that any dividends, if any, declared on
Common Shares from the beginning of the Performance Period through the date of
payment of the Award of Performance Shares that would have been paid with
respect to Performance Shares had they been Common Shares owned by a grantee,
shall be (a) paid to the grantee in cash, or (b) accumulated for the benefit of
the grantee and converted into an increased number of Performance Shares to be
paid to the grantee pursuant to the Award.
8.7 Delayed Payment. If the Committee, in its sole discretion,
determines that any
<PAGE> 7
amount payable as a Performance Award (a) will not be deductible by the Company
by reason of Code Section 162(m) if paid when otherwise scheduled but (b) will
be deductible if paid by the Company at a later date, the Committee may cause
the Company to delay the payment of that amount until the amount so paid will be
deductible under Code Section 162(m). The delayed payment of a Performance Award
payable in Common Shares or Restricted Shares shall be equal to the number of
Performance Shares earned but unpaid. The delayed payment of a Performance Award
payable in cash shall be equal to the Fair Market Value of the earned but unpaid
Performance Shares as of the appropriate date selected by the Committee.
9. Termination of Employment. After an Employee's Employment
Termination Date, the rules set forth in this Section 9 shall apply. All factual
determinations with respect to the termination of an Employee's employment that
may be relevant under this Section 9 shall be made by the Committee in its sole
discretion.
9.1 Termination Other Than Upon Death or Disability or for Cause. Upon
any termination of an Employee's employment for any reason other than the
Employee's disability or death or the Employee's termination for Cause:
(a) Unless otherwise provided in the relevant Award Instrument, the
Employee shall have the right during the period ending three months
after the Employment Termination Date, but not later than the Option
Expiration Date, to exercise any Options and related SARs that were
outstanding on the Employment Termination Date, if and to the same
extent as those Options and SARs were exercisable by the Employee on
the Employment Termination Date,
(b) Unless otherwise provided in the relevant Award Instrument, the
Employee shall offer for resale at the Acquisition Price to the Company
each Common Share of Restricted Shares held by the Employee at the
Employment Termination Date with respect to which, as of that date, any
restrictions, conditions, or contingencies have not lapsed, and
(c) Unless otherwise provided in the relevant Award Instrument, the
Employee shall forfeit each Performance Share with respect to which, as
of that date, any restrictions, conditions, or contingencies have not
lapsed.
9.2 Termination Due To Disability. Upon any termination of an
Employee's employment due to disability:
(a) Unless otherwise provided in the relevant Award Instrument, the
Employee, or the Employee's Representative, shall have the right (i) to
exercise, from time to time during the period ending one year after the
Employment Termination Date, but not later than the Option Expiration
Date, any Nonqualified Options and related SARs that were outstanding
on the Employment Termination Date, if and to the same extent those
Options and SARs were exercisable by the Employee on the Employment
Termination Date, and (ii) to exercise, from time to time during the
period ending one year after the Employment Termination Date, but not
later than the Option Expiration Date, any Incentive Stock Options and
related SARs that were outstanding on the Employment Termination Date,
if and to the same extent as those Options and SARs were exercisable by
the Employee on the Employment Termination Date (even though exercise
of the Incentive Stock Option more than three months after the
Employment Termination Date
<PAGE> 8
may cause the Option to fail to qualify for Incentive Stock Option
treatment under the Code),
(b) Unless otherwise provided in the relevant Award Instrument, the
Employee, or the Employee's Representative, shall offer for resale at
the Acquisition Price to the Company each Common Share of Restricted
Shares held by the Employee at the Employment Termination Date with
respect to which, as of that date, any restrictions, conditions, or
contingencies have not lapsed, and
(c) Unless otherwise provided in the relevant Award Instrument, the
Employee shall forfeit each Performance Share with respect to which, as
of that date, any restrictions, conditions, or contingencies have not
lapsed.
9.3 Death of an Employee. Upon the death of an Employee while employed
by the Company or any Subsidiary or within any of the periods referred to in
either of Section 9.1 or Section 9.2 during which any particular Option or SAR
remains potentially exercisable:
(a) Unless otherwise provided in the relevant Award Instrument (in
which the Committee may specify a different period of extension of the
Option Expiration Date in the event of the death of the Employee), if
the Option Expiration Date of any Nonqualified Option that had not
expired before the Employee's death would otherwise expire before the
first anniversary of the Employee's death, that Option Expiration Date
shall automatically be extended to the first anniversary of the
Employee's death,
(b) Unless otherwise provided in the relevant Award Instrument, any
Options and related SARs that are outstanding on the date of the
Employee's death shall become immediately exercisable in full and the
Employee's Representative shall have the right to exercise, from time
to time during the period ending one year after the date of the
Employee's death, but not later than the Option Expiration Date, any
such Options and related SARs in accordance with Section 5.4 (as to any
Options) or Section 6.2 (as to any SARs),
(c) Unless otherwise provided in the relevant Award Instrument, the
Restriction Period with respect to all outstanding Awards of Restricted
Shares that had been outstanding on the date of the Employee's death
shall immediately terminate, and
(d) Unless otherwise provided in the relevant Award Instrument, the
restrictions, conditions, or contingencies on any Performance Shares
held by the Employee at the date of death shall be modified in such
manner as the Committee may specify to give the Employee's
Representative the benefit of those Performance Shares through that
date.
9.4 Termination for Cause. Upon any termination of an Employee's
employment for Cause:
(a) All of the Employee's rights with respect to unexercised Options
and SARs shall expire immediately before the Employment Termination
Date,
(b) The Employee shall offer for resale at the Acquisition Price to the
Company all Restricted Shares held by the Employee at the Employment
Termination Date with respect to which, as of that date, any
restrictions, conditions, or contingencies have not lapsed, and
<PAGE> 9
(c) The Employee shall forfeit all Performance Shares with respect to
which, as of the Employment Termination Date, any restrictions,
conditions, or contingencies have not lapsed.
10. Acceleration Upon Change of Control. Unless otherwise specified in
the relevant Award Instrument, upon the occurrence of a Change of Control of the
Company, each Award theretofore granted to any Employee that then remains
outstanding shall be modified as follows: (a) any outstanding Option shall
become immediately exercisable in full, (b) SARs related to any such Options
shall also become immediately exercisable in full, (c) the Restriction Period
with respect to all outstanding Awards of Restricted Shares shall immediately
terminate, and (d) the restrictions, conditions, or contingencies on any
Performance Shares shall be modified in such manner as the Committee may specify
to give the Employee the benefit of those Performance Shares through the date of
Change of Control.
11. Assignability. Except as may be otherwise provided by the Committee
and reflected in the Award Instrument, no Option, SAR, Restricted Shares, or
Performance Share may be transferred other than by will or by the laws of
descent and distribution. During an Employee's lifetime, only the Employee (or
in the case of incapacity of an Employee, the Employee's attorney-in-fact or
legal guardian) may exercise any Award requiring or permitting exercise.
12. Adjustment Upon Changes in Common Shares. In the event of any stock
dividend, stock split, or share combination of the Common Shares or any
reclassification, recapitalization, merger, consolidation, other form of
business combination, liquidation, or dissolution involving the Company or any
spin-off or other distribution to shareholders of the Company (other than normal
cash dividends), (a) the Committee shall make appropriate adjustments to the
overall aggregate limit set forth in Section 2.1 and to the specific further
limits set forth in Section 2.2, and (b) the Committee shall adjust the number
and kind of shares subject to, the price per share under, and the terms and
conditions of each then outstanding Award to the extent necessary and in such
manner that the benefits of Employees under all then outstanding Awards shall be
maintained substantially as before the occurrence of such event. Any adjustment
so made by the Committee shall be conclusive and binding for all purposes of the
Plan as of such date as the Committee may determine.
13. Purchase For Investment. Each person acquiring Common Shares
pursuant to any Award may be required by the Company to furnish a representation
that he or she is acquiring the Common Shares so acquired as an investment and
not with a view to distribution thereof if the Company, in its sole discretion,
determines that such representation is required to insure that a resale or other
disposition of the Common Shares would not involve a violation of the Securities
Act of 1933, as amended, or of applicable blue sky laws. Any investment
representation so furnished shall no longer be applicable at any time such
representation is no longer necessary for such purposes.
14. Withholding of Taxes. The Company will withhold from any payments
of cash made pursuant to the Plan such amount as is necessary to satisfy all
applicable federal, state, and local withholding tax obligations. The Committee
may, in its sole discretion and subject to such rules as the Committee may adopt
from time to time, permit or require an Employee to satisfy, in whole or in
part, any withholding tax obligation that may arise in connection with the grant
of an Award, the lapse of any restrictions with respect to an Award, the
acquisition of Common Shares pursuant to any Award, or the disposition of any
Common Shares received pursuant to any Award by such means as the Committee may
determine including, without limitation, by having
<PAGE> 10
the Company hold back some portion of the Common Shares that would otherwise be
delivered pursuant to the Award or by delivering to the Company an amount equal
to the withholding tax obligation arising with respect to such grant, lapse,
acquisition, or disposition in (a) cash, (b) Common Shares, or (c) such
combination of cash and Common Shares as the Committee may determine. The Fair
Market Value of the Common Shares to be so held back by the Company or delivered
by the Employee shall be determined as of the date on which the obligation to
withhold first arose. The Company may apply the provisions of this Section 14
based upon generally applicable withholding rates and without regard to any
statutory minimum rate applicable to special payments.
15. Awards in Substitution for Awards Granted by Other Companies.
Awards, whether Incentive Stock Options, Nonqualified Options, SARs, Restricted
Shares, or Performance Shares, may be granted under the Plan in substitution for
awards held by employees of a company who become Employees of the Company or a
Subsidiary as a result of the merger or consolidation of the employer company
with the Company or a Subsidiary, or the acquisition by the Company or a
Subsidiary of the assets of the employer company, or the acquisition by the
Company or a Subsidiary of stock of the employer company as a result of which it
becomes a Subsidiary. The terms, provisions, and benefits of the substitute
Awards so granted may vary from the terms, provisions, and benefits set forth in
or authorized by the Plan to such extent as the Committee at the time of the
grant may deem appropriate to conform, in whole or in part, to the terms,
provisions, and benefits of the awards in substitution for which they are
granted.
16. Legal Requirements. No Awards shall be granted and the Company
shall have no obligation to make any payment under the Plan, whether in Common
Shares, cash, or any combination thereof, except in compliance with all
applicable Federal and state laws and regulations, including, without
limitation, the Code and Federal and state securities laws.
17. Duration and Termination of the Plan. The Plan shall become
effective and shall be deemed to have been adopted on the date on which it is
approved by the shareholders of the Company and shall remain in effect
thereafter until terminated by action of the Board of Directors. No termination
of the Plan shall adversely affect the rights of any Employee with respect to
any Award granted before the effective date of the termination.
18. Amendments. The Board of Directors, or a duly authorized committee
thereof, may alter or amend the Plan from time to time prior to its termination
in any manner the Board of Directors, or such duly authorized committee, may
deem to be in the best interests of the Company and its shareholders, except
that no amendment that would increase the overall aggregate limit set forth in
Section 2.1 or any of the specific further limits set forth in Section 2.2, in
each case as adjusted by Section 12, may be made without shareholder approval.
The Committee shall have the authority to amend the terms and conditions
applicable to outstanding Awards (a) in any case where expressly permitted by
the terms of the Plan or of the relevant Award Instrument or (b) in any other
case with the consent of the Employee to whom the Award was granted, except that
no amendment of an Option, or an Option and its related SAR, may reduce the
exercise price of such Option. Except as expressly provided in the Plan or in
the Award Instrument evidencing the Award, the Committee may not, without the
consent of the holder of an Award granted under the Plan, amend the terms and
conditions applicable to that Award in a manner adverse to the interests of the
Employee.
19. Plan Noncontractual. Nothing herein contained shall be construed as
a commitment to or agreement with any person employed by the Company or a
Subsidiary to continue such
<PAGE> 11
person's employment with the Company or the Subsidiary, and nothing herein
contained shall be construed as a commitment or agreement on the part of the
Company or any Subsidiary to continue the employment or the annual rate of
compensation of any such person for any period. All Employees shall remain
subject to discharge to the same extent as if the Plan had never been put into
effect.
20. Interest of Employees. Any obligation of the Company under the Plan
to make any payment at any future date merely constitutes the unsecured promise
of the Company to make such payment from its general assets in accordance with
the Plan, and no Employee shall have any interest in, or lien or prior claim
upon, any property of the Company or any Subsidiary by reason of that
obligation.
21. Claims of Other Persons. The provisions of the Plan shall in no
event be construed as giving any person, firm, or corporation any legal or
equitable right against the Company or any Subsidiary, their officers,
employees, agents, or directors, except any such rights as are specifically
provided for in the Plan or are hereafter created in accordance with the terms
and provisions of the Plan.
22. Absence of Liability. No member of the Board of Directors of the
Company or a Subsidiary, of the Committee, of any other committee of the Board
of Directors, or any officer or Employee of the Company or a Subsidiary shall be
liable for any act or action under the Plan, whether of commission or omission,
taken by any other member, or by any officer, agent, or Employee, or, except in
circumstances involving his bad faith or willful misconduct, for anything done
or omitted to be done by himself.
23. Severability. The invalidity or unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable provision
were omitted herefrom.
24. Governing Law. The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
25. Definitions.
25.1 1934 Act. The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
25.2 Acquisition Price. The term "Acquisition Price" with respect to
any Restricted Shares shall mean such amount, if any, as may be specified by the
Committee in the Award Instrument with respect to those Restricted Shares as the
consideration to be paid by the Employee for those Restricted Shares.
25.3 Award. The term "Award" shall mean an award granted under the Plan
of an Option, of Stock Appreciation Rights, of Restricted Shares, or of
Performance Shares.
25.4 Award Instrument. The term "Award Instrument" shall mean a written
instrument evidencing an Award in such form and with such provisions as the
Committee may prescribe, including, without limitation, an agreement to be
executed by the Employee and the Company, a certificate issued by the Company,
or a letter executed by the Committee or its designee. Each Award Instrument
shall provide that acceptance of the Award Instrument by an Employee
<PAGE> 12
constitutes agreement to the terms of the Award evidenced thereby.
25.5 Cause. The Company shall be deemed to have "Cause" for the
termination of an Employee's employment if the Employee has committed any act or
series of acts determined by the Committee (in a determination made either
before or after the Employment Termination Date) to warrant discharge from
employment, including, without limitation, any act of theft or dishonesty in
connection with the Employee's employment with the Company, any unauthorized
disclosure of confidential information belonging to the Company, or other
similar action.
25.6 Change of Control. A "Change of Control" shall be deemed to have
occurred if at any time or from time to time after the date of adoption of the
Plan:
(a) there is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form, or report), each as adopted under the 1934
Act, disclosing the acquisition of 25% or more of the voting stock of
the Company in a transaction or series of transactions by any person
(as the term "person" is used in Section 13(d) and Section 14(d)(2) of
the 1934 Act),
(b) during any period of 730 consecutive days or less, individuals who
at the beginning of such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof unless
the election of each new director of the Company was approved or
recommended by the vote of at least two-thirds of the directors of the
Company then still in office who were directors of the Company at the
beginning of that period,
(c) the Company merges with or into or consolidates with another
corporation following approval of the shareholders of the Company of
such merger or consolidation and, after giving effect to such merger or
consolidation, less than 50% of the then outstanding voting securities
of the surviving or resulting corporation represent or were issued in
exchange for voting securities of the Company outstanding immediately
prior to such merger or consolidation,
(d) there is a sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company following approval of
the shareholders of the Company of such transaction or series of
transactions, or
(e) the shareholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company.
25.7 Code. The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
25.8 Committee. The term "Committee" shall mean a committee appointed
by the Board of Directors of the Company to administer the Plan. The Committee
shall be composed of not less than two directors of the Company. The Board of
Directors may also appoint one or more directors as alternate members of the
Committee. No officer or Employee of the Company or of any Subsidiary shall be a
member or alternate member of the Committee. The Committee shall at all times be
comprised solely of "outside directors" within the meaning of Code Section
162(m) and in such a manner as to satisfy the "non-employee" director standard
contained in Rule 16b-3.
<PAGE> 13
25.9 Common Shares. The term "Common Shares" shall mean common shares
of the Company without par value.
25.10 Company. The term "Company" shall mean STERIS Corporation and its
successors, including the surviving or resulting corporation of any merger of
STERIS Corporation with or into, or any consolidation of STERIS Corporation
with, any other corporation or corporations.
25.11 Disability. An Employee shall be deemed to have suffered a
"Disability" if and only if (a) the Employee has established to the satisfaction
of the Committee that the Employee is unable to perform the Employee's normal
duties and responsibilities with the Company by reason of a medically
determinable physical or metal impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of
not less than 12 months, all within the meaning of Section 22(e)(3) of the Code,
and (b) the Employee has satisfied any other requirement that may be imposed by
the Committee.
25.12 Employee. The term "Employee" shall mean any individual employed
by the Company or by any Subsidiary (including any individual employed by the
Company or any Subsidiary who is also a member of the Board of Directors of the
Company or of any Subsidiary).
25.13 Employee's Representative. The term "Employee's Representative"
shall mean, (a) in the case of a deceased Employee, the Employee's executor or
administrator or the person or persons to whom the Employee's rights under any
Award are transferred by will or the laws of descent and distribution, and (b)
in the case of a disabled or incapacitated Employee, the Employee's
attorney-in-fact or legal guardian.
25.14 Employment Termination Date. The term "Employment Termination
Date" with respect to an Employee shall mean the first date on which, as of the
end of the day, the Employee is no longer employed by the Company or any
Subsidiary.
25.15 Exercise Price. The term "Exercise Price" with respect to an
Option shall mean the price specified in the Option at which the Common Shares
subject to the Option may be purchased by the holder of the Option.
25.16 Fair Market Value. Except as otherwise determined by the
Committee, the term "Fair Market Value" with respect to Common Shares shall mean
the closing sales price of the Common Shares as reported on the national
securities exchange on which the Common Shares are traded, or, if applicable, as
reported on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") National Market, on the date for which the determination of
fair market value is made or, if there are no sales of Common Shares on that
date, then on the next preceding date on which there were any sales of Common
Shares. If the Common Shares are not or cease to be traded on a national
securities exchange or on the NASDAQ National Market, the "Fair Market Value" of
Common Shares shall be determined in the manner prescribed by the Committee.
25.17 Incentive Stock Option. The term "Incentive Stock Option" shall
mean an Option intended by the Committee to qualify as an "incentive stock
option" within the meaning of Section 422 of the Code.
<PAGE> 14
25.18 Nonqualified Option. The term "Nonqualified Option" shall mean an
Option intended by the Committee not to qualify as an "incentive stock option"
under Section 422 of the Code.
25.19 Option. The term "Option," shall mean an Award entitling the
holder thereof to purchase a specified number of Common Shares at a specified
price during a specified period of time.
25.20 Option Expiration Date. The term "Option Expiration Date" with
respect to any Option shall mean the date selected by the Committee after which,
except as provided in Section 9.3 in the case of the death of the Employee to
whom the option was granted, the Option may not be exercised.
25.21 Performance Goal. The term "Performance Goal" shall mean a
performance goal specified by the Committee in connection with the potential
grant of Performance Shares and may include, without limitation, goals based
upon cumulative earnings per Common Share, return on investment, return on
shareholders' equity, or achievement of any other goals, whether or not readily
expressed in financial terms, that are related to the performance by the
Company, by any Subsidiary, or by any Employee or group of Employees in
connection with services performed by that Employee or those Employees for the
Company, a Subsidiary, or any one or more subunits of the Company or of any
Subsidiary.
25.22 Performance Period. The term "Performance Period" shall mean such
one or more periods of time, which may be of varying and overlapping durations,
as the Committee may select, over which the attainment of one or more
Performance Goals will be relevant in connection with one or more Awards of
Performance Shares.
25.23 Performance Shares. The term "Performance Shares" shall mean an
Award denominated in Common Shares and contingent upon attainment of one or more
Performance Goals by the Company or a Subsidiary or any subunit of the Company
or of any Subsidiary over a Performance Period.
25.24 Plan. The term "Plan" shall mean this STERIS Corporation 1998
Long-Term Incentive Stock Plan as from time to time hereafter amended in
accordance with Section 18.
25.25 Restricted Shares. The term "Restricted Shares" shall mean Common
Shares of the Company delivered to an Employee pursuant to an Award subject in
every case to:
(a) the restriction that the Employee not sell, transfer, otherwise
dispose of, or pledge or otherwise hypothecate the Restricted Shares
during the applicable Restriction Period, and
(b) the requirement that, subject to the provisions of Section 9, if
the Employee's employment terminates so that the Employee is no longer
employed by the Company or any Subsidiary before the end of the
applicable Restriction Period, the Employee will offer to sell to the
Company at the Acquisition Price each Common Share of Restricted Shares
held by the Employee at the Employment Termination Date with respect to
which, as of that date, any restrictions, conditions, or contingencies
have not lapsed.
<PAGE> 15
In addition to the restriction and requirement set forth in (a) and (b), above,
each Common Share of Restricted Shares shall be subject to such other
restrictions, conditions, and contingencies, if any, as the Committee may
provide in the Award Instrument with respect to that Restricted Shares.
25.25 Restriction Period. The term "Restriction Period" with respect to
an Award of Restricted Shares shall mean the period selected by the Committee
and specified in the Award Instrument with respect to those Restricted Shares
during which the Employee may not sell, transfer, otherwise dispose of, or
pledge or otherwise hypothecate the Restricted Shares. The length of the
Restriction Period shall be determined by the Committee in its sole discretion.
25.27 Rule 16b-3. The term "Rule 16b-3" shall mean Rule 16b-3 or any
successor provision under the 1934 Act.
25.28 Stock Appreciation Right. The term "Stock Appreciation Right" or
"SAR" shall mean an Award granted to an Employee with respect to all or any part
of any Option that entitles the holder thereof to receive from the Company, upon
exercise of the SAR and surrender of the related Option, or any portion of the
SAR and the related Option, an amount equal to 100%, or such lesser percentage
as the Committee may determine at the time of the grant of the Award, of the
excess, if any, measured at the time of the exercise of the SAR, of (a) the Fair
Market Value of the Common Shares subject to the Option with respect to which
the SAR is exercised over (b) the Exercise Price of those Common Shares under
the Option.
25.29 Subsidiary. The term "Subsidiary" shall mean any corporation,
partnership, joint venture, or other business entity in which the Company owns,
directly or indirectly, 50% or more of the total combined voting power of all
classes of stock (in the case of a corporation) or other ownership interests (in
the case of any entity other than a corporation).
<PAGE> 1
EXHIBIT 10.10
STERIS CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
FY 1999
OBJECTIVE
The objective of the STERIS Corporation Management Incentive Compensation Plan
(MICP) is to encourage greater initiative, resourcefulness, teamwork,
efficiency, and achievement of objectives on the part of key management whose
performance and responsibilities directly affect Company profits.
GENERAL PROVISIONS
The MICP for FY 1999 may be reviewed and revised at the Chief Executive
Officer's discretion within the guidelines established by the Compensation
Committee of the Board of Directors. Any incentive payouts under the terms of
this Plan will be limited by any governmental regulations that are in effect at
the time of such incentive payouts.
The incentive compensation fund available for disbursement to participants shall
be determined by achievement of key parameters of the approved Annual Business
Plan.
Management Incentive Compensation will be calculated after the close of each
quarter and will be cumulative and retroactive. That is, deficiencies in
year-to-date (YTD) performance can be made up by overachievement in subsequent
quarters during the fiscal year.
A portion of the earned Management Incentive Compensation will be paid on a
quarterly basis with another portion held in an escrow account to be paid on an
annual basis. An accrual funding schedule will be developed and maintained by
the Finance Department to reserve adequate funds for the payment of earned
Management Incentive Compensation.
KEY PARAMETERS
MICP compensation will be determined through achievement of a combination of
Annual Business Plan (ABP) objectives and Quarterly Individual Objectives (IO).
ABP parameters are the Net Revenue, Operating Income, and Net Income objectives.
IO parameters are approved quarterly personal objectives that are brief,
specific, measurable, and consistent with overall Company objectives.
<PAGE> 2
MANAGEMENT INCENTIVE COMPENSATION PLAN - FY'99
PAGE TWO
ELIGIBILITY
The management level classifications of individuals who may be eligible to
participate in the MICP are the following:
Sr. Vice President
Division President/Unit Head
Vice President
Director
Manager
Supervisor/Professional
Incumbents holding a key management position with one of the above titles are
immediately eligible for participation. New hires for an above titled position
will begin participation in the MICP during the first full fiscal quarter of
employment unless otherwise specified in the employment offer. An individual
promoted to a higher management level during a quarter will have MICP
compensation for that quarter at the management level held by the individual for
the majority of the quarter.
Termination of employment of a participant shall result in his or her forfeiture
of all unpaid incentive earnings.
MICP FY'99 PARTICIPANT BONUS SCHEDULE
The bonus opportunity for each management level upon 100% achievement of the
FY'99 Net Revenue, Operating Income, and Net Income objectives is as follows:
Management Level Quarterly Funding
---------------- -----------------
Senior Vice President 100% of Base Income
Division President/Unit Head 75% of Base Income
Vice President 50% of Base Income
Director 35% of Base Income
Manager 20% of Base Income
Supervisor/Professional $625
<PAGE> 3
MANAGEMENT INCENTIVE COMPENSATION PLAN - FY'99
PAGE THREE
BONUS POOL FUNDING
The funding of the bonus pool will be determined quarterly on a YTD basis. Any
funding will be dependent upon the Company's YTD achievement of net revenue and
operating income in relationship to the Annual Business Plan parameters. The
following weighting factor will apply to the qualification parameters:
Net Revenue 75%
Operating Income 25%
Funding will occur on a sliding scale basis from 80% to 120% of the Blended
Achievement Percentage. The following is a calculation example based upon YTD
achievement of 104% of net revenue and 110% of operating income parameters of
the ABP.
104 x 3 = 312
110 x 1 = 110
---
422/4 = 105.5% - Blended Rate
During FY'99, the Company must achieve at least an 80% blended rate to be
eligible for MICP participation. For divisional MICP participation the Company
and the respective division must achieve an 80% blended rate to be eligible for
MICP participation.
INDIVIDUAL OBJECTIVES (IO)
Quantifiable management objectives are developed and approved quarterly for each
MICP participant. An individual's performance is evaluated at the end of each
quarter and a percentage Individual Objectives (IO) Achievement calculated. The
Individual Objectives are consistent with the quarterly and longer term
objectives for the Company and the individual business units, profit centers,
corporate services groups, or departments.
BONUS CALCULATION
Individual participant bonuses and bonus payouts will be determined as defined
in this bonus calculation section.
1. The bonus qualifier will be based on the Blended Achievement Percentage
of the Company's Net Revenue and Operating Income objectives.
2. The performance in achieving the Net Revenue and Operating Income bonus
qualification parameters will be determined on a YTD basis with a
weighting of 3X for Net Revenue and 1X for Operating Income.
3. Individual participant payout targets will be taken from the then
current Participant and Target Bonus Schedule.
<PAGE> 4
MANAGEMENT INCENTIVE COMPENSATION PLAN - FY'99
PAGE FOUR
4. The YTD Blended Achievement Percentage will be applied to the
individual Target Bonus to determine the quarterly MICP eligible bonus
amount.
5. If bonus eligibility on a YTD quarterly basis has occurred, the
individual MICP eligible bonus amount is multiplied by the percentage
achievement of the quarterly Individual Objectives that have been
approved at the beginning of each quarter by the participant's direct
supervisor and the senior executive/business head of the individual's
business unit.
Bonus calculation example:
<TABLE>
<CAPTION>
<S> <C>
Vice President $80,000 Base Salary
50% Target Bonus
Corp Achievement 104% Net Revenue
110% Op Income
104 x 3 = 312
110 x 1 = 110
---
422/4 = 105.5% - Blended Rate
Individual Objectives (IO) Achievement
96%
Quarterly Target Bonus
$80,000 x 50%/4 = $10,000
Sliding Scale Blended Target
$10,000 x 105.5% = $10,550
Earned Bonus
$10,550 x 96% (IO) = $10,128
</TABLE>
BONUS PAYMENT
Seventy-five percent (75%) of the eligible individual quarterly bonus will be
paid following the end of each quarter. Twenty-five percent (25%) of the
eligible individual quarterly bonus will be held in a bonus escrow account and
will be paid following the end of the fiscal year only if the Corporation meets
or exceeds its Net Income objective for the full fiscal year. Should the
Corporation fail to meet or exceed its Net Income objective for the full fiscal
year, all funds in the bonus escrow account will be forfeited.
EFFECTIVE DATE
The STERIS Management Incentive Compensation Plan is effective April 1, 1998,
through March 31, 1999.
<PAGE> 1
EXHIBIT 10.11
STERIS CORPORATION
SENIOR EXECUTIVE MANAGEMENT INCENTIVE COMPENSATION PLAN
1. OBJECTIVE
The Senior Executive Management Incentive Compensation Plan (the "Plan") is
intended to provide incentive compensation for those employees ("Covered
Employees") of STERIS Corporation (the "Company") whose annual incentive
compensation for any taxable year of the Company commencing on or after April 1,
1998 the Committee (as defined below) anticipates would not be fully deductible
by the Company due to the application of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). The objective of the Plan is to encourage
greater initiative, resourcefulness, teamwork, efficiency, and achievement of
objectives on the part of Covered Employees whose performance and
responsibilities directly affect Company profits.
2. ELIGIBILITY
All Covered Employees will be eligible to be selected to participate in the
Plan. The Committee shall select the Covered Employees who will participate in
the Plan for any period. A Covered Employee who is so selected with respect to
any such period is sometimes referred to in the remainder of this Plan as a
"Participant." A Covered Employee who is selected to be a Participant in the
Plan for any period shall be ineligible to be a participant for that period in
the Company's Management Incentive Compensation Plan applicable to other
officers of the Company.
3. ADMINISTRATION
The Plan shall be administered by the Compensation Committee of the Board of
Directors (the "Board"), or by another committee appointed by the Board (the
"Committee"). The Committee shall be comprised exclusively of Directors who are
not employees and who are "outside directors" within the meaning of Section
162(m)(4)(C) of the Code. The Committee shall have authority, subject to the
provisions herein, to select employees to participate in the Plan; establish and
administer the performance goals and the award opportunities applicable to each
Participant and certify whether the goals have been attained; construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
establish, amend, and waive rules and regulations for the Plan's administration;
and make all other determinations that may be necessary or advisable for the
administration of the Plan. Any determination by the Committee pursuant to the
Plan shall be final, binding, and conclusive on all employees and Participants
and anyone claiming under or through any of them.
<PAGE> 2
4. ESTABLISHMENT OF PERFORMANCE GOALS
The Committee shall establish in writing the performance goals for each
performance period, which shall be based on any of the following business
criteria, either alone or in any combination, and on either a consolidated or
business unit level, as the Committee may in each case determine: return on net
assets, return on capital employed, economic value added, level of sales, net
revenue, earnings per share, income before income taxes and the cumulative
effect of accounting changes, operating income, net income, earnings before
interest and taxes, return on equity, total shareholder return, market
valuation, cash flow, completion of acquisitions, product and market
development, and customer satisfaction criteria. The foregoing terms shall have
any reasonable definitions that the Committee may specify, which may include or
exclude any or all of the following items, as the Committee may specify:
extraordinary, unusual, or non-recurring items; effects of accounting changes;
effects of currency fluctuations; effects of financing activities; expenses for
restructuring or productivity initiatives; non-operating items; acquisition
expenses; and effects of divestitures. Any of the foregoing criteria may apply
to a Participant's award opportunity for any period in its entirety or to any
designated portion of the award opportunity, as the Committee may specify.
5. ESTABLISHMENT OF AWARD OPPORTUNITIES
The Committee shall establish in writing the method for computing the amount of
compensation that will be payable under the Plan with respect to each
performance period to each Participant if the performance goals established by
the Committee for that performance period are attained in whole or in part and
if the Participant's employment by the Company continues throughout the end of
that performance period. Any such method established shall be stated in terms of
an objective formula or standard that precludes discretion to increase the
amount of the award that would otherwise be due upon attainment of the goals. No
provision of the Plan shall be deemed to preclude the Committee from exercising
negative discretion (within the meaning of Treasury Regulation Section
1.162-27(e)(2)(iii)(A)) with respect to any award.
6. MAXIMUM AWARD
The maximum amount of compensation that may be paid under the Plan to any
Participant for any year is $3,000,000.
7. ATTAINMENT AND CERTIFICATION OF PERFORMANCE GOALS REQUIRED
Except in those cases referred to in Section 8 below, awards under the Plan with
respect to any period will be paid only if (a) the performance goals established
by the Committee for that period have been attained, and (b) the Committee
certifies in writing, prior to the payment of the award, that the performance
goals and any other material terms were in fact satisfied. For these purposes,
approved minutes of the Committee meeting in which such a certification is made
will be treated as a written certification. Unless the Committee determines
otherwise, earned awards shall be paid (x) promptly following certification by
the Committee and (y) in cash, net of applicable payroll tax withholding.
<PAGE> 3
8. PRO RATA AWARDS IN CERTAIN CIRCUMSTANCES
If a Participant's employment with STERIS is terminated before the end of a
fiscal year on account of (a) death, (b) disability, or (c) retirement or
resignation with the consent of the Committee, the Company shall pay to the
Participant (or to the Participant's personal representative, if the Committee
so determines), not later than 30 days after the date of termination, a pro rata
award for the fiscal year in which the termination occurs equal to the
Participant's target award for the entire fiscal year (as determined by the
Committee) multiplied by a fraction, the numerator of which is the number of
full or partial calendar months between the beginning of the fiscal year and the
date of termination and the denominator of which is twelve (net of any payments
previously made with respect to that award opportunity). If there occurs a
Change of Control of the Company (as defined in the Company's 1998 Long-Term
Incentive Stock Plan), the Company shall pay to the Participant, not later than
five days after the occurrence of the Change of Control, a pro rata award for
the fiscal year in which the Change of Control occurs equal to the Participant's
target award for the entire fiscal year (as determined by the Committee)
multiplied by a fraction, the numerator of which is the number of full or
partial calendar months between the beginning of the fiscal year and the date of
the occurrence of the Change of Control and the denominator of which is twelve
(net of any payments previously made with respect to that award opportunity). If
the Participant's employment continues after the Change of Control, any amount
paid pursuant to the immediately preceding sentence shall be credited against
any award to be made under the Plan to the Participant for the full fiscal year
in which the Change of Control occurred.
9. AMENDMENT, TERMINATION, AND TERM
The Board may amend, modify, or terminate the Plan at any time, provided that no
such amendment, modification, or termination shall adversely affect the
incentive opportunity of any Participant with respect to the portion of the year
elapsed before the date of the amendment, modification, or termination, without
the Participant's written consent. The Plan will remain in effect until
terminated by the Board.
10. SHAREHOLDER APPROVAL
Payment of awards under the Plan is contingent upon shareholder approval of the
Plan, in accordance with applicable Treasury regulations under Section 162(m) of
the Code. Unless and until shareholder approval is obtained, no awards will be
paid under the Plan.
<PAGE> 4
11. INTERPRETATION AND CONSTRUCTION
Unless and to the extent otherwise determined by the Committee, awards under the
Plan are intended to qualify as performance-based compensation under Section
162(m)(4)(C) of the Code and any provision of the Plan that would prevent an
award under the Plan that is so intended to qualify from so qualifying shall be
administered, interpreted, and construed to carry out such intention and any
provision that cannot be so administered, interpreted, and construed shall to
that extent be disregarded. No provision of the Plan, nor the selection of any
eligible employee to participate in the Plan, shall constitute an employment
agreement or affect the duration of any Participant's employment, which shall
remain "employment at will" unless an employment agreement between the Company
and the Participant provides otherwise. Both the Participant and the Company
shall remain free to terminate employment at any time to the same extent as if
the Plan had not been adopted.
12. GOVERNING LAW
The Plan and its administration shall be governed by the laws of the State of
Ohio, without reference to the conflicts of laws principles of that State.
<PAGE> 1
EXHIBIT 21.1 SUBSIDIARIES OF STERIS CORPORATION
STERIS has no parent company. As of March 31, 1999, certain of its direct
and indirect subsidiaries were as follows:
<TABLE>
<CAPTION>
Subsidiary Location
---------- --------
<S> <C>
STERIS Foreign Sales Corporation US Virgin Islands
Medical & Environmental Designs, Inc. (MED Inc.) Missouri
STERIS S.r.l. Italy
Ecomed, Inc. Indiana
Isomedix Inc. Delaware
Isomedix Corporation Canada
Isomedix Operations Inc Delaware
Hausted, Inc. Delaware
American Sterilizer Company Pennsylvania
STERIS Inc. Delaware
STERIS Canada Inc. Canada
STERIS (Barbados) Corp. Barbados
STERIS Canada Corporation Canada
STERIS Europe, Inc. Delaware
STERIS Holdings B.V. Netherlands
AMSCO Finn-Aqua Oy Finland
STERIS GmbH Germany
AMSCO S.A./N.V. Belgium
STERIS Iberia, S.A. (Spain) Spain
STERIS S.A. (France) France
STERIS Limited United Kingdom
Detach AB Sweden
STERIS Asia Pacific, Inc. Delaware
STERIS Japan, K.K. Japan
STERIS Hong Kong Limited Hong Kong
STERIS Singapore Pte. Ltd. Singapore
STERIS Latin America, Inc. Delaware
AMSCO Brasil Comercio e Servicos Ltda. Brazil
AMSCO de Costa Rica, S.A. Costa Rica
</TABLE>
<PAGE> 1
EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
and related Prospectuses of our report dated April 26, 1999, with respect to the
consolidated financial statements and schedule of STERIS Corporation and
Subsidiaries included in this Annual Report (Form 10-K) for the year ended March
31, 1999:
<TABLE>
<CAPTION>
Registration Number Description Filing Date
- -------------------- ---------------------------------------------------------------------- --------------------------
<S> <C> <C>
333-65155 Form S-8 Registration Statement -- STERIS Corporation 1998 Long Term October 1, 1998
Incentive Compensation Plan
333-55839 Form S-8 Registration Statement -- Nonqualified Stock Option June 2, 1998
Agreement between STERIS Corporation and John Masefield and
the Nonqualified Stock Option Agreement between STERIS Corporation
and Thomas J. DeAngelo
333-32005 Form S-8 Registration Statement -- STERIS Corporation 1997 Stock July 24, 1997
Option Plan
333-06529 Form S-3 Registration Statement -- STERIS Corporation June 21, 1996
333-01610 Post-effective Amendment to Form S-4 on Form S-8 -- STERIS May 16, 1996
Corporation
33-91444 Form S-8 Registration Statement -- STERIS Corporation 1994 Equity April 24, 1995
Compensation Plan
33-91442 Form S-8 Registration Statement -- STERIS Corporation 1994 April 24, 1995
Nonemployee Directors Equity Compensation Plan
33-55976 Form S-8 Registration Statement -- STERIS Corporation 401(k)Plan December 21, 1992
33-55258 Form S-8 Registration Statement -- STERIS Corporation Amended and December 4, 1992
Restated Non-Qualified Stock Option Plan
</TABLE>
Ernst & Young LLP
Cleveland, Ohio
June 18, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, an officer or director, or both an officer and director,
of STERIS Corporation, an Ohio corporation, which proposes to file with the
Securities and Exchange Commission, Washington, D. C. under the provisions of
the Securities and Exchange Act of 1934, as amended, its Annual Report on Form
10-K for the fiscal year ended March 31, 1999 (the "Annual Report"), hereby
constitutes Bill R. Sanford, Michael A. Keresman, III, David C. Dvorak, and Roy
L. Turnell, and each of them, as attorney for the undersigned, with full power
of substitution and resubstitution, for and in the name, place, and stead of the
undersigned, to sign and file the Annual Report, and exhibits thereto, and any
and all amendments thereto, with full power and authority to do and perform any
and all acts whatsoever requisite and necessary to be done in the premises,
hereby ratifying and approving the acts of such attorney or any such substitute.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of June 11,
1999.
<TABLE>
<CAPTION>
<S> <C>
/s/ Bill R. Sanford /s/ Michael A. Keresman, III
- --------------------------------------------- -------------------------------------------
Bill R. Sanford Michael A. Keresman, III
Chairman of the Board, President, and Senior Vice President and
Chief Executive Officer Chief Information Officer
/s/ Raymond A. Lancaster /s/ Thomas J. Magulski
- --------------------------------------------- -------------------------------------------
Raymond A. Lancaster Thomas J. Magulski
Director Director
/s/ J.B. Richey /s/ Jerry E. Robertson, Ph.D
- --------------------------------------------- -------------------------------------------
J. B. Richey Jerry E. Robertson, Ph.D.
Director Director
/s/ Frank E. Samuel, Jr. /s/ Loyal W. Wilson
- --------------------------------------------- -------------------------------------------
Frank E. Samuel, Jr. Loyal W. Wilson
Director Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 23,680
<SECURITIES> 0
<RECEIVABLES> 230,346
<ALLOWANCES> 0
<INVENTORY> 99,279
<CURRENT-ASSETS> 393,397
<PP&E> 372,386
<DEPRECIATION> (111,105)
<TOTAL-ASSETS> 865,996
<CURRENT-LIABILITIES> 157,137
<BONDS> 0
0
0
<COMMON> 222,946
<OTHER-SE> 212,991
<TOTAL-LIABILITY-AND-EQUITY> 435,937
<SALES> 797,611
<TOTAL-REVENUES> 797,611
<CGS> 429,020
<TOTAL-COSTS> 429,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,736
<INCOME-PRETAX> 127,196
<INCOME-TAX> 42,342
<INCOME-CONTINUING> 84,854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,854
<EPS-BASIC> 1.24
<EPS-DILUTED> 1.20
</TABLE>
