STERIS CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2002

Commission file number 0-20165

STERIS Corporation

(Exact name of registrant as specified in its charter)

	Ohio	34-1482024
	(State or other jurisdiction of	(IRS Employer
	incorporation or organization)	Identification No.)

	5960 Heisley Road,	440-354-2600
	Mentor, Ohio 44060-1834	(Registrant’s telephone number,
	(Address of principal executive offices)	including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ].

The number of Common Shares outstanding as of October 31, 2002: 69,402,929

STERIS Corporation

Index

Part I - Financial Information		Page (s)
Item 1.	Financial Statements	3-10
	Independent Accountants’ Review Report	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12-19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
Part II - Other Information
Item 1.	Legal Proceedings	20
Item 6.	Exhibits and Reports on Form 8-K	20
	Signature	21
	Certification of the Chief Executive Officer	22
	Certification of the Chief Financial Officer	23

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STERIS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)

	September 30,			March 31,
	2002			2002

	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	15,959		$	12,424
Accounts receivable (net of allowances of $6,902 and $8,031, respectively)		177,166			196,631
Inventories		82,683			77,922
Current portion of deferred income taxes		20,125			20,011
Prepaid expenses and other assets		10,455			9,656

Total current assets		306,388			316,644
Property, plant, and equipment, net		339,487			328,329
Intangibles, net		193,604			190,822
Other assets		3,086			5,777

Total assets	$	842,565		$	841,572

Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term indebtedness	$	1,663		$	1,663
Accounts payable		49,196			56,734
Accrued income taxes		17,993			20,067
Accrued expenses and other		89,411			91,646

Total current liabilities		158,263			170,110
Long-term indebtedness		100,319			115,228
Deferred income taxes		19,381			19,381
Other liabilities		51,319			49,708

Total liabilities		329,282			354,427
Shareholders’ equity:
Serial preferred shares, without par value; 3,000 shares authorized; no
shares issued or outstanding		-			-
Common Shares, without par value; 300,000 shares authorized;
issued and outstanding shares of 69,243 and 69,466, respectively		215,927			223,244
Retained earnings		309,112			277,867
Accumulated other comprehensive loss:
Minimum pension liability		(1,038	)		(1,038	)
Cumulative foreign currency translation adjustment		(10,718	)		(12,928	)

Total shareholders’ equity		513,283			487,145

Total liabilities and shareholders’ equity	$	842,565		$	841,572

See notes to consolidated financial statements.

STERIS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)

	Three Months Ended				Six Months Ended
	September 30,				September 30,

		2002		2001		2002		2001

Net revenues:
Product	$	161,556	$	144,437	$	316,316	$	280,280
Service		71,176		61,956		137,767		123,187

Total net revenues		232,732		206,393		454,083		403,467


Cost of revenues:
Product		93,890		85,764		184,556		165,825
Service		42,447		35,955		81,318		71,755

Total cost of revenues		136,337		121,719		265,874		237,580
Gross profit		96,395		84,674		188,209		165,887

Operating expenses:
Selling, general, and administrative		61,457		62,963		127,706		127,765
Research and development		5,757		4,978		10,729		11,270

		67,214		67,941		138,435		139,035

Income from operations		29,181		16,733		49,774		26,852
Interest expense, net		413		2,099		953		5,261

Income before income taxes		28,768		14,634		48,821		21,591
Income tax expense		10,357		5,415		17,576		7,989

Net income	$	18,411	$	9,219	$	31,245	$	13,602


Net income per share - basic	$	0.27	$	0.13	$	0.45	$	0.20

Net income per share - diluted	$	0.26	$	0.13	$	0.44	$	0.19

See notes to consolidated financial statements.

STERIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

	Six Months Ended
	September 30,

	2002			2001

Operating activities
Net income	$	31,245		$	13,602
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		23,568			23,732
Deferred income taxes		(114	)		-
Other items		5,160			6,317
Changes in operating assets and liabilities:
Accounts receivable		20,406			18,905
Inventories		(4,761	)		(5,692	)
Other current assets		(734	)		(771	)
Accounts payable, accruals, and other, net		(13,749	)		(9,851	)

Net cash provided by operating activities		61,021			46,242

Investing activities
Purchases of property, plant, equipment, and patents		(30,388	)		(24,583	)
Investment in businesses, net		(140	)		-

Net cash used in investing activities		(30,528	)		(24,583	)

Financing activities
Payments on long-term obligations		(781	)		(228	)
Payments under credit facility		(17,000	)		(39,300	)
Purchase of treasury shares		(16,070	)		-
Stock option and other equity transactions		5,268			4,348

Net cash used in financing activities		(28,583	)		(35,180	)
Effect of exchange rate changes on cash and cash equivalents		1,625			(247	)

Increase (decrease) in cash and cash equivalents		3,535			(13,768	)
Cash and cash equivalents at beginning of period		12,424			24,710

Cash and cash equivalents at end of period	$	15,959		$	10,942

See notes to consolidated financial statements.

STERIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended
September 30, 2002 and 2001
(dollars in thousands, except per share amounts)

1. Reporting Entity

STERIS Corporation (the "Company" or "STERIS") develops, manufactures, and markets infection prevention, contamination prevention, microbial reduction, and medical and therapy support systems, products, services, and technologies for healthcare, scientific, research, and industrial customers throughout the world. The Company has over 4,500 employees worldwide, with approximately 1,700 involved in direct sales, service, and field support. Customer support facilities are located in several major global market centers with manufacturing operations in the United States, Australia, Canada, Germany, Finland, and Sweden. STERIS operates in a single business segment.

2. Basis of Presentation

The Company’s unaudited consolidated financial statements for the three and six months ended September 30, 2002 and September 30, 2001 included in this Quarterly Report on Form 10-Q have been prepared in accordance with the accounting policies described in the Notes to Consolidated Financial Statements for the fiscal year ended March 31, 2002, which were included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 20, 2002, and in management’s opinion contain all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K referred to above. The consolidated balance sheet at March 31, 2002 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

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 conform to the current year classification.

3. Recently Issued Accounting Standards

In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"), and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), were issued by the Financial Accounting Standards Board. SFAS 141 eliminates the pooling-of-interests method for business combinations and requires the use of the purchase method and establishes criteria to be used in the determining whether acquired intangible assets are to be separated from goodwill.

SFAS 142 changes the accounting for goodwill and indefinite life intangibles from an amortization approach to a non-amortization approach, and requires periodic tests for impairment of these assets. SFAS 142 requires the discontinuance of amortization of goodwill and indefinite life intangibles that had been recorded in connection with previous business combinations. The Company has conducted valuations of its reporting units and, based on these valuations, the Company has concluded that goodwill is not impaired.

STERIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended
September 30, 2002 and 2001
(dollars in thousands, except per share amounts)

The Company adopted SFAS 141 and SFAS 142 on April 1, 2002. The following table reflects the reconciliation of reported net income and net income per share to the amounts adjusted for the exclusion of goodwill amortization:

	Three Months Ended				Six Months Ended
	September 30,				September 30,

	2002		2001		2002		2001

Net income:
Reported net income	$	18,411	$	9,219	$	31,245	$	13,602
Add back: Goodwill amortization, net of tax		-		1,265		-		2,585

Adjusted net income	$	18,411	$	10,484	$	31,245	$	16,187

Net income per share:
Basic:
Reported net income per share - basic	$	0.27	$	0.13	$	0.45	$	0.20
Add back: Goodwill amortization, net of tax		-		0.02		-		0.03

Adjusted net income per share - basic	$	0.27	$	0.15	$	0.45	$	0.23

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents