MENTOR, Ohio, May 10 /PRNewswire-FirstCall/ -- STERIS Corporation today announced financial results for its fiscal 2006 fourth quarter and full year ended March 31, 2006. Fiscal 2006 fourth quarter revenues increased 8% to a record $331.3 million, compared with $307.0 million in the fourth quarter of fiscal 2005, driven by growth in all three operating segments.
Fiscal 2006 fourth quarter net income, as reported, was $8.5 million, or $0.12 per diluted share, including restructuring expenses. Restructuring expenses, which were primarily non-cash, negatively impacted pre-tax earnings by $25.3 million and were largely related to the previously announced transfer of the Erie, Pennsylvania manufacturing operations to Monterrey, Mexico. Fiscal 2006 fourth quarter results were also negatively impacted by a significantly higher effective tax rate, primarily due to ongoing routine IRS audits covering the tax years 1997-2001. Additionally, during the quarter, the Company incurred expenses of approximately $4.0 million related to the termination of certain long-term marketing agreements. Excluding the $25.3 million restructuring expense, adjusted net income from continuing operations was $23.1 million, or $0.34 per diluted share, compared with net income from continuing operations of $25.1 million, or $0.36 per diluted share in the prior year quarter. A reconciliation of fourth quarter adjusted net income can be found in the attached financial tables as part of the Company’s non- GAAP disclosures.
“Although there were many factors impacting our reported earnings this year, the bottom line is that fiscal 2006 was an important one for STERIS. Our performance was stable and we delivered strong cash generation, but overall, we were short of where we expect to be long-term,” said Les C. Vinney, STERIS’s president and chief executive officer. “We did take several critical actions that will prepare the Company for the future, and set a solid foundation for accelerated earnings growth. Not only have we begun to turn the corner with our Life Sciences business, which delivered a much improved fourth quarter, we also took a major step towards lowering our cost structure by announcing the transfer of manufacturing operations from Erie to Monterrey, Mexico. In addition, building on our actions in Life Sciences, we intensified our effort to move our European operations toward profitability and further advanced our new product application development. As these key actions come together over time, and we continue to develop new opportunities, we expect to be solidly positioned for future growth.”
For the full year fiscal 2006, revenues increased 7% to a record $1.16 billion compared with fiscal 2005. Net income, as reported, was $70.3 million, or $1.02 per diluted share, compared with $86.0 million, or $1.23 per diluted share in fiscal 2005. Net income for fiscal 2006 includes the gain on the sale of the discontinued freeze dryer product line and the restructuring expenses incurred in the fourth quarter. Net income from continuing operations, excluding restructuring expenses, was $78.6 million, or $1.14 per diluted share compared with net income from continuing operations of $83.7 million, or $1.20 per diluted share in fiscal 2005. A reconciliation of full year adjusted net income can be found in the attached financial tables as part of the Company’s non-GAAP disclosures.
Segment Results
Healthcare revenues for the fourth quarter increased 7% to $233.6 million compared with the prior year quarter. Acquisitions contributed 3% to revenue growth, including strong sales of the acquired C-Max surgical table, both in the U.S. and internationally. Service and consumables growth drove the organic growth in the quarter. Including the impact of restructuring expenses, Healthcare segment operating income was $11.3 million for the quarter, compared with $40.4 million in the fourth quarter of last year. Excluding restructuring expenses, Healthcare operating income was $36.1 million, a decline of 11% compared with the prior year quarter, reflecting the termination of certain long-term marketing agreements and investments in Asia, a key growth market.
Life Sciences fourth quarter revenues increased 16% to $65.9 million compared with $56.9 million in the fourth quarter of fiscal 2005. The increase in revenues reflects increased demand for capital equipment in the pharmaceutical production market. In addition, the Company benefited from a focus on selling replacement equipment to the research market. Life Sciences recorded operating income of $2.4 million in the quarter, compared with breakeven operating results in the same period last year, primarily reflecting increased volumes. Excluding restructuring expenses, Life Sciences operating income was $2.9 million.
Fourth quarter revenues for STERIS Isomedix Services increased 2% to $31.8 million compared with the prior year fourth quarter. Although base market demand remains stable, revenue comparisons in the segment were impacted by increased processing revenue in the 2005 fiscal year, as a result of a short- term reduction in industry capacity. Segment operating income was $4.9 million compared with $5.9 million in the prior year quarter. The lower segment operating margin rate primarily reflected flat volumes and the fixed cost nature of the segment.
A reconciliation of segment operating income excluding restructuring expenses can be found in the attached financial tables as part of the Company’s non-GAAP disclosures.
Cash Flow
Cash provided by operations for fiscal 2006 was $162.0 million, compared with $148.9 million last year. Free cash flow (1) was a record $110.8 million, compared with free cash flow of $92.7 million in fiscal 2005, primarily reflecting reduced capital expenditures and lower working capital requirements. Capital expenditures for fiscal 2006 were $51.2 million, compared with $56.2 million in the same period last year.
During the quarter, the Company repurchased 786,500 shares of its common stock at an average price of $25.21 per common share for a total cash amount of $19.8 million. At the end of the quarter, approximately 2.2 million common shares remained under the Company’s currently authorized share repurchase program.
Fiscal 2007 Outlook
Reflecting a commitment to communicating long-term growth prospects and outlook to investors, the Company will provide only annual guidance, replacing the past practice of providing quarterly guidance. On a quarterly basis, the Company expects to update its annual outlook based upon current trends and its review of performance.
For fiscal 2007, the Company’s guidance includes the impact of the transfer of Erie manufacturing operations to Mexico. In addition, guidance includes the Company’s accounting for stock-based compensation for the first time, which will impact gross margins and operating margins for the segments and total Company.
The table below provides the range of anticipated performance for fiscal year 2007 for key financial metrics.
Revenue Growth Healthcare Segment 4% to 6% Life Sciences Segment 6% to 8% Isomedix Segment 4% to 5% Total Net Revenues (in millions) $1,210 to $1,230 Gross Margin Rate 41.5% to 42.5% Operating Margin Rate Healthcare Segment 12% to 13% Life Sciences Segment 1% to 2% Isomedix Segment 15% to 16% Total Operating Margin Rate 10.5% to 11.5% Tax Rate 39% to 41% Diluted Earnings Per Share $1.10 to $1.20 Free Cash Flow (in millions) $60 to $65 Capital Expenditures (in millions) $65 to $70
Inherent in this outlook are certain key assumptions such as the expectation that the Company’s revenue growth will be in line with the anticipated growth rates in its key markets. Additionally, there is an assumption that the Company will not receive regulatory approvals for significant new products or achieve breakthroughs in new markets. Gross margin will vary within the ranges noted and could potentially be higher or lower due to changes in raw material pricing. The tax rate will vary from quarter to quarter and could be outside the above range pending audit activity and performance in international locations. Included in the outlook provided is the net impact of the transfer of Erie manufacturing operations to Mexico, which is expected to reduce pre-tax earnings by approximately $10 million. Also included is the expense of stock-based compensation in the amount of approximately $10 million. The Company’s results are expected to follow its regular pattern of sequentially increasing revenues throughout the year. In fiscal 2007, this pattern may be accentuated by the nature of the costs and benefits associated with the transfer of Erie manufacturing operations to Mexico. As a result, roughly one-third of annual earnings is expected to be achieved in the first half of the year and two-thirds in the second half, totaling anticipated earnings per diluted share for fiscal 2007 of $1.10 to $1.20. Free cash flow levels for fiscal 2007, when compared with fiscal 2006, reflect the timing of tax payments and expected increases in capital spending levels.
Conference Call
In conjunction with this press release, STERIS Corporation management will host a conference call today at 10:00 a.m. Eastern time. The conference call can be heard live over the Internet at www.steris-ir.com or via phone by dialing 1-888-392-9976 in the United States and Canada, and 1-517-645-6486 internationally, then referencing the password “STERIS” and the conference leader’s name, “Aidan Gormley.”
For those unable to listen to the conference call live, a replay will be available from 12:00 p.m. Eastern time on May 10, 2006, until 5:00 p.m. Eastern time on May 24, 2006, either over the Internet at www.steris-ir.com or via phone by calling 1-800-756-3940 in the United States and Canada, and 1- 402-998-0796 internationally.
About STERIS
The mission of STERIS Corporation is to provide a healthier today and safer tomorrow through knowledgeable people and innovative infection prevention, decontamination and health science technologies, products and services. The Company’s more than 5,000 dedicated employees around the world work together to supply a broad array of solutions by offering a combination of equipment, consumables and services to healthcare, pharmaceutical, industrial and government customers. The Company is listed on the New York Stock Exchange under the symbol STE. For more information, visit www.steris.com.
(1) Free cash flow is a non-GAAP number used by the Company as a measure to gauge its ability to invest for growth. Free cash flow is defined as operating cash flow less purchases of property, plant, equipment, and intangibles, net (capital expenditures). STERIS’s calculation of free cash flow may vary from other companies.
This news release and the conference call referenced here may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to the Company or its industry that are intended to qualify for the protections afforded “forward- looking statements” under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date of this report, and may be identified by the use of forward-looking terms such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” and “seeks,” or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, and changes in government regulations or the application or interpretation thereof. Other risk factors are described in the Company’s Form 10-K and other securities filings. Many of these important factors are outside STERIS’s control. No assurances can be provided as to any future financial results. Unless legally required, the Company does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the potential for increased pressure on pricing that leads to erosion of profit margins, (b) the possibility that market demand will not develop for new technologies, products or applications, or the Company’s business initiatives will take longer, cost more or produce lower benefits than anticipated, (c) the possibility that application of or compliance with laws, court rulings, regulations, certifications or other requirements or standards may delay or prevent new product introductions, affect the production and marketing of existing products, or otherwise affect Company performance, results, or value, (d) the potential of international unrest or effects of fluctuations in currencies, tax assessments or rates, raw material costs, benefit or retirement plan costs, or other regulatory compliance costs, (e) the possibility of reduced demand, or reductions in the rate of growth in demand, for the Company’s products and services, and (f) the possibility that anticipated cost savings may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with the matters described in this release may adversely impact Company performance, results, or value.
STERIS Corporation Consolidated Condensed Statements of Income (In thousands, except per share data) Three Months Ended Twelve Months Ended March 31, March 31, 2006 2005 2006 2005 (Unaudited)(Unaudited)(Unaudited) Revenues $331,274 $307,041 $1,160,285 $1,081,674 Cost of revenues 197,944 177,576 676,100 619,753 Gross profit 133,330 129,465 484,185 461,921 Operating expenses: Selling, general, and administrative 81,384 75,805 315,582 289,068 Restructuring expense 25,308 - 25,308 - Research and development 8,036 7,325 33,597 31,509 114,728 83,130 374,487 320,577 Income from operations 18,602 46,335 109,698 141,344 Non-operating expense, net 845 1,032 1,580 3,052 Income from continuing operations before income tax expense 17,757 45,303 108,118 138,292 Income tax expense 10,313 20,214 45,172 54,620 Income from continuing operations 7,444 25,089 62,946 83,672 Gain on sale of discontinued operations, net of tax 1,008 - 6,234 - (Loss) income from discontinued operations, net of tax - (76) 1,109 2,308 Net income $8,452 $25,013 $70,289 $85,980 Earnings per common share (EPS) data: Basic earnings per common share Continuing operations $0.11 $0.36 $0.92 $1.21 Discontinued operations 0.02 0.00 0.10 0.03 Net income $0.13 $0.36 $1.03 $1.24 Diluted earnings per common share Continuing operations $0.11 $0.36 $0.91 $1.20 Discontinued operations 0.01 0.00 0.11 0.03 Net income $0.12 $0.36 $1.02 $1.23 Cash dividends declared per common share outstanding $0.04 - $0.16 - Weighted average number of common shares outstanding used in EPS computation: Basic number of common shares outstanding 67,425 69,398 68,238 69,254 Diluted number of common shares outstanding 68,066 70,063 68,939 70,022 STERIS Corporation Consolidated Condensed Balance Sheets (In thousands) March 31, March 31, 2006 2005 Assets (Unaudited) Current assets: Cash and cash equivalents $72,732 $23,547 Accounts receivable, net 242,002 245,471 Inventories, net 112,224 98,487 Other current assets 33,357 15,977 Current assets of discontinued operations - 36,650 Total Current Assets 460,315 420,132 Property, plant, and equipment, net 401,536 408,848 Goodwill and intangible assets, net 326,529 350,112 Other assets 593 1,786 Long term assets of discontinued operations - 4,844 Total Assets $1,188,973 $1,185,722 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $87,057 $68,608 Other current liabilities 147,089 130,015 Current liabilities of discontinued operations - 23,193 Total Current Liabilities 234,146 221,816 Long-term debt 114,480 104,274 Other liabilities 109,520 97,108 Liabilities of discontinued operations - 6,886 Shareholders’ equity 730,827 755,638 Total Liabilities and Shareholders’ Equity $1,188,973 $1,185,722 STERIS Corporation Consolidated Condensed Statements of Cash Flows (In thousands) Twelve Months Ended March 31, 2006 2005 (Unaudited) Operating Activities: Net income $70,289 $85,980 Non-cash items 47,203 61,817 Working capital adjustments 44,463 1,068 Net cash provided by operating activities 161,955 148,865 Investing Activities: Purchases of property, plant, equipment, and intangibles, net (51,170) (56,167) Proceeds from sale of discontinued operations 22,111 - Investments in businesses, net of cash acquired (7,165) (131,106) Net cash used in investing activities (36,224) (187,273) Financing Activities: Proceeds (payments) under credit facilities, net (4,708) (3,198) Payments on long-term obligations and capital leases, net 11,780 (3,674) Repurchases of common shares (84,153) (33,868) Cash dividends paid to common shareholders (10,937) - Deferred financing fees (217) - Stock options and other equity transactions, net 11,834 21,587 Net cash used in financing activities (76,401) (19,153) Effect of exchange rate changes on cash and cash equivalents (145) 808 Increase (decrease) in cash and cash equivalents 49,185 (56,753) Cash and cash equivalents at beginning of period 23,547 80,300 Cash and cash equivalents at end of period $72,732 $23,547 STERIS Corporation Segment Data (In thousands) Three Months Ended Twelve Months Ended March 31, March 31, 2006 2005 2006 2005 (Unaudited)(Unaudited)(Unaudited) Segment Revenues: Healthcare $233,591 $218,996 $817,014 $763,879 Life Sciences 65,898 56,859 215,827 213,003 STERIS Isomedix Services 31,785 31,186 127,444 104,792 Total Segment Revenues $331,274 $307,041 $1,160,285 $1,081,674 Segment Operating Income (Loss): Healthcare $11,306 $40,409 $88,914 $125,589 Life Sciences 2,427 43 (379) (3,843) STERIS Isomedix Services 4,869 5,883 21,163 19,598 Total Segment Operating Income $18,602 $46,335 $109,698 $141,344 STERIS Corporation Non-GAAP Disclosures (Unaudited) (In thousands, except per share data) The following tables present financial measures which are considered to be “non-GAAP financial measures” under Securities Exchange Commissions rules. The Company has referred to results of operations excluding restructuring expenses and the results of discontinued operations, in order to provide meaningful comparative analysis between the periods presented. Free cash flow is defined by the Company as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net (capital expenditures). Free cash flow is a non-GAAP figure used by the Company as a measure to gauge its ability to invest for growth. STERIS’s calculation of free cash flow may vary from other companies. Twelve Months Ended March 31, Calculation of Free Cash Flow from continuing operations: 2006 2005 Cash flows from operating activities $161,955 $148,865 Purchases of property, plant, equipment, and intangibles, net 51,170 56,167 Free Cash Flow from Continuing Operations $110,785 $92,698 The following tables reconcile reported net income to net income from continuing operations, excluding restructuring expenses: Three Months Ended March 31, 2006 2005 Diluted Diluted Amount EPS Amount EPS Net Income, As Reported $8,452 $0.12 $25,013 $0.36 Less Discontinued Operations: Gain on the Sale of Discontinued Operations, Net of Tax 1,008 0.01 - - Income (loss) from Discontinued Operations, Net of Tax - - (76) (0.00) Net Income From Continuing Operations $7,444 $0.11 $25,089 $0.36 Restructuring Expenses, Net of Tax of $9,607 15,701 0.23 - - Net Income From Continuing Operations, Excluding Restructuring Expenses $23,145 $0.34 $25,089 $0.36 Fiscal Year Ended March 31, 2006 2005 Diluted Diluted Amount EPS Amount EPS Net Income, As Reported $70,289 $1.02 $85,980 $1.23 Less Discontinued Operations: Gain on the Sale of Discontinued Operations, Net of Tax 6,234 0.09 - - Income (loss) from Discontinued Operations, Net of Tax 1,109 0.02 2,308 0.03 Net Income From Continuing Operations $62,946 $0.91 $83,672 $1.20 Restructuring Expenses, Net of Tax of $9,607 15,701 0.23 - - Net Income From Continuing Operations, Excluding Restructuring Expenses $78,647 $1.14 $83,672 $1.20 Three Months Ended Twelve Months Ended March 31, March 31, Segment Operating Income (Loss) Excluding Restructuring Expenses: 2006 2005 2006 2005 Healthcare $36,132 $40,409 $113,740 $125,589 Life Sciences 2,909 43 103 (3,843) STERIS Isomedix Services 4,869 5,883 21,163 19,598 Total Segment Operating Income $43,910 $46,335 $135,006 $141,344
STERIS Corporation
CONTACT: Aidan Gormley, Senior Director, Corporate Communications andInvestor Relations of STERIS, +1-440-392-7607
